Minimum payment and credit scores

Once upon a time, a person’s credit rating was based on whether or not he or she paid their monthly obligations “as agreed.”  The loan officer would call the local credit bureau office , yes by telephone, and inquire as to how Mr. or Mrs. Applicant was handling their credit.  The credit bureau clerk would reply with updates provided by local and regional lenders with numerical ratings such as “Sears reports R1 and  Ford Motor Credit I1 ” That was simple. As time passed, the Fair Isaac Company (FICO) introduced a formula that provided a numerical score of whether the applicant would honor their future credit obligations.   At the time this was controversial as individuals who had never missed a payment were being declined for having a lower than average score. The scoring was based on a number of other factors including many recent inquires, a high percentage  drawdown of approved credit lines and a heavy revolving debt compared to installment and residential mortgage.

Prepare for yet another twist. new Soon, your credit report will include 24 months of detail on the minimum payment required for each account, and this is the new part,  the amount actually paid on each account.  As a result, individuals who pay their monthly balance in full will be rated higher.  Those who pay only the minimum required payment will not be rated as high as those who pay a greater amount. Sometimes it makes sense to use a retailer’s revolving credit feature.  For example, a retailer may offer a six month interest free financing plan.  (Pay the purchase price in full within six months interest free! )  It’s unlikely such a single retailer account will, by itself, affect your credit score, be aware that the new formula rewards pay-in-full over minimum-payment consumers  

red_arrow What to do?

  1. Always make your monthly payments on or before the due date.
  2. Where possible pay revolving account balances in full.
  3. If you cannot or choose not to pay the revolving accounts in full, make payment amounts greater than the minimum amount required.

smart_tip And remember, the Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies — EquifaxExperian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months.   Order your three credit reports online through Annual Credit Report. Carefully review each reporting to be sure what is being reported actually belongs to you and the amounts are accurate.  If you notice an error appearing on each of the three reports, you must dispute that error separately with each consumer reporting company, Equifax, Experian and TransUnion. Each will present your dispute to the creditor and will respond to your complaint. If the creditor, however, disagrees with your dispute you may need to file the complaint with the federal Consumer Protection Financial Bureau.



About Daniel G. Alcorn
My financial services career began in the late 70's in New Hampshire. My career path includes 19 years in Vermont where I served as Senior Vice President of the state's largest commercial bank. I relocated to New York's Capital Region in 2003 where I now enjoy helping individuals and families with their Life, Medicare and Long Term Care insurance decisions. Let's connect online at and

One Response to Minimum payment and credit scores

  1. onlyonecat says:

    This has been extremely useful; thanks for the post.

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