The manner in which a customer uses his/her credit card can significantly affect their credit score. Making timely payments towards utility bills and maintaining a low balance in comparison with the credit limit can directly impact the customer’s credit score. However, lenders can get a good amount of information by merely keeping an eye on the manner in which you make your payments towards credit card bills.
Companies that issue credit cards continue to send reports to credit bureaus regarding the amount of money you pay on a monthly basis. Regardless of how much is paid, the data will be displayed on your credit report. If a customer pays his bills consistently, albeit just a small portion, the credit score of the customer may not change. However, the data will indicate a shift in the finances that increase your liability towards the lender. Only if a customer misses a payment or experiences an increase in his credit utilisation rate will his credit score begin to suffer.
Report from Issuers
The revolving accounts and most recent credit report of a customer contain fields such as rating, amount due, past due, amount paid and balance. The rating and balance are the most important factors of a customer’s credit score as they contribute towards their repayment history and credit utilisation rate that is how much of the credit limit is used, respectively. The details about amount due and amount paid will indicate that the customer has paid their whole balance within the time frame. However, the number of issuers who report the aforementioned data currently stands at only 70% of the total.
What happens when a customer makes minimum payments?
It is instrumental for your credit score to make payments on time. Even if the customer can only afford to make the minimum payment in any given month, it is essential to do so on a consistent basis so that your credit rating is not adversely affected. Conversely, customers who make minimum payments but miss out now and again will have to deal with a decrease in their credit score. Problems with credit scores may also occur if a customer makes minimum payments and at the same time, spends and increases his credit card balances. In this case, the credit utilisation rate is affected, which then affects his credit score. FICO advises all customers to ensure that their credit utilisation rate is under 30%. Basically, what matters more that the amount paid every month is the consistency with which the customer makes payments.
Since an increasing number of people are making minimum payments, the behavioural pattern among credit card users has changed. A survey found that customers who make full payments were 63% less likely to default in a period of six months, while customers who make minimum payments or pay just above the minimum amount were 86% more likely to default in the following six months.
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