Does Your Credit Score Go Down If You Don’t Pay In Full?

One of the best ways to get and keep a good credit score is to pay off your credit card balances in full every month. People who have credit cards often wonder if not paying off their balance in full will hurt their credit. The short answer is – it can. Here’s a detailed look at how paying less than the full balance can hurt your credit score and what you can do to fix the problem.

How Credit Card Issuers Report Payment Information

When you make a credit card payment, your card issuer reports the payment information to the three major credit bureaus – Equifax, Experian, and TransUnion. They report whether you made at least the minimum payment and whether you paid the balance in full.

The amount you still owe will show up on your credit report if you don’t pay it off in full. Having a balance on all of your cards can hurt your credit utilization rate and, eventually, your credit score over time.

Why Paying In Full Is Ideal

Paying your credit card balance in full each month demonstrates responsible credit card use. It shows creditors that you can manage your credit lines wisely and aren’t at risk of overextending yourself financially.

Conversely, carrying a balance month-to-month can signal that you may have difficulty making payments down the road. This is why paying in full is the ideal approach for building your credit score.

How Not Paying In Full Impacts Your Credit Score

There are five main factors that make up your FICO credit score:

• Payment history
• Credit utilization
• Length of credit history
• New credit
• Credit mix

Credit utilization is the second most important factor, making up 30% of your total score. How much of your available credit you are using at any given time is called credit utilization.

Your credit utilization rate goes up when you don’t pay off your full balance every month. Your credit score will go down more if you use a lot of credit.

As a general rule try to keep your utilization below 30%. The lower the better. Maxing out cards or having high utilization across multiple cards is especially harmful.

Additional Drawbacks Of Carrying A Balance

Aside from the credit score impact, carrying a balance month-to-month also means paying interest charges. Most credit cards have high interest rates ranging from 15-25% APR.

For example, if you have a $1,000 balance on a card with a 20% APR and you only pay the minimum, you could owe over $200 in interest charges over the course of a year. Those interest fees can quickly negate any rewards you may have earned.

Strategies To Mitigate Damage

If you can’t pay your balance in full one month, there are some strategies you can use to reduce the credit score impact:

• Pay more than the minimum – Paying even $20 or $50 above the minimum can help lower your utilization rate. This signals responsible usage.

• Pay down balances before the statement cuts – Make payments before your statement closing date to lower the balance reported to the bureaus.

• Ask for a credit line increase – A higher limit means a lower utilization rate. Just don’t use the increased limit to overspend.

• Use low limit cards lightly – Limit usage on cards with small limits, as these impact utilization more significantly.

• Spread balances across cards – Avoid maxing out one card. Distribute balances across multiple cards to lessen the impact on any individual card’s utilization rate.

• Ask for goodwill removal – If a high balance was reported, ask the issuer to remove it as a “goodwill adjustment.” They may comply to help improve your credit standing.

When Paying In Full Isn’t Feasible

For some people, paying credit card balances in full every month simply isn’t feasible. If money is tight, focus on paying at least the minimum by the due date to avoid late fees and credit damage. As soon as you are able, start paying more than the minimum to pay down the debt faster.

Avoid relying on credit cards until you pay down balances and are able to pay in full monthly. Seek out lower interest rate options like balance transfer or personal loans to reduce interest fees in the interim.

The Takeaway

Not paying your credit card balance in full can negatively impact your credit score over time. High revolving utilization signals credit risk to potential lenders.

To maximize your score, always try to pay your balance in full and on time each month. If that’s not possible, use mitigation strategies to lessen the damage until you can pay down the debt. Monitoring your credit and maintaining healthy usage habits are vital for credit health.