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Repaying a large purchase with minimum payments can hurt credit scores

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Topics addressed on June 14, 2006:

Repaying a large purchase with minimum payments can hurt credit scores

Dear Max,

I was told that to increase your credit score you should make a large purchase on your credit card, make payments a little larger than the minimum until the balance is gone, then repeat the process. Is this true?

- BCO

Dear BCO,

No, it is not true. In fact, doing so could hurt your credit scores.

One of the strongest indicators of high credit risk is a high balance compared to your credit limit. When you have charged to the limit, any unexpected misfortune could cause you to default on the debt. As a result, making a large purchase that takes most of your credit limit could actually make your credit scores worse.

It is better to keep the balances on your credit accounts low and make all of your payments on time. Low balances as compared to your credit limits are considered positive, and time is a critical factor. The longer an account is open with no late payments, the better it is for your credit scores.

Low balances indicate you use your available credit judiciously, and a long history of on-time payments shows you manage your finances reliably.

Those two things will gradually improve your credit scores and ensure they are maintained. There is no “quick fix” for creating high credit scores, or recovering from credit problems.

Thanks for asking.

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