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Study Finds Card Holders Who Only Pay the Minimum Have Higher Delinquency Rates

David Andrew 7/24/14

The amount consumers pay per month toward their credit cards gives a pretty good indication of whether or not they will ever be delinquent on their account.

The credit rating agency TransUnion recently ran a study trying to see if there was a pattern between how much people paid toward their cards versus whether or not they would default on their debt.

For this study, TransUnion asked whether a person paid the minimum payment on a card, paid more than the minimum payment or paid the entire balance each month.

The results show 40 percent of card holders pay off their balance in full, 20 percent only make the minimum payment and 40 percent carry a balance but pay more than the minimum.

“Twenty percent of card holders

only make the minimum payment.”

TransUnion found card holders who only made the minimum payment had higher delinquency rates not only on credit cards, but also other debts like mortgages and car loans.

Card holders who carried a balance but paid more than the minimum were riskier than card holders who paid everything off, but they were significantly better than card holders who only pay the minimum.

This does not appear to be true, and lenders may start to give better terms to clients who carry a balance but still pay more than the minimum. This information also gives lenders another way to review applicants on top of credit scores.

Consumers should keep this information in mind as they pay off their cards. If you can’t pay off your full balance, try to pay more than the minimum, as this will make you look like a safer credit risk.

Source: nationalmortgageprofessional.com. Photo: www.actevablog.com.

About David Andrew
David Andrew is a former New York Life financial adviser, holding Series 6 and Certified Financial Planner credentials from his years with the company. He also holds degrees in economics and finance from McGill University. David is now a well-published finance writer with special expertise in credit cards and auto insurance. In addition to his work on BadCredit.org, his articles have been featured on eHow, Zacks.com, TheNest.com, Chron.com and other popular sites. When he's not keeping up with the latest news in the world of finance, David enjoys playing tennis and golf.
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