Why you should pay your credit card bill in full

Credit cards allow you to take the benefit of the float or credit period and manage your money better. While the credit period is a benefit that is useful, many people tend to only pay the minimum amount due but you shouldn’t pay only the minimum amount. Here is why paying off your credit card bills in full is important.

What is a credit card outstanding balance?

It is the outstanding amount that is payable to the credit card issuer. The balance is not just the total sum of all your purchases through your credit card; it also contains the interest charged on any  unpaid amount, late payment penalties, and other charges you may have incurred during a particular billing cycle, including purchases converted into EMIs.

How do credit card payments work?

Every credit card has a set credit limit. It is the amount of money that you can spend using that card. Each lender also provides a credit period where no interest is chargeable if the credit card dues are paid in full. The card issuer will send you the credit card bill every month and provide details regarding the minimum amount due, due date and other charges, if any. 

In case you aren't able to pay your credit card bill in full for a particular month and decide to pay only the minimum due amount, or an amount less than the full billed amount, the remaining will get carried over into the following month's balance and incur interest. Due to this, paying off the entire amount due is better than only paying the minimum amount due.  

Advantages of paying your credit card bill in full

You can enjoy the following benefits if you pay your credit card bill in full: 

• Paying your credit card balance in full would reduce your outstanding amount and maintain a good repayment history.

• As there is no remaining balance, no interest is chargeable. You will only need to pay the amount for purchases made.

• Paying off your credit card bills in full, and on time, will reduce your credit utilisation ratio, which, in turn, will help improve your credit score.

• You can better understand your monthly budget once the total dues are paid. It enables you to plan next month's budget without the headache of paying interest on the unpaid credit card balance.
  
  

Impact on credit score after clearing monthly credit card dues in full

There is a misconception that if you pay the minimum due amount on your credit card, your credit score will not get affected. Let us clarify this for you - it does impact the credit score. If the outstanding balance is excessively high compared to your credit limit, it increases your credit utilisation ratio. This ratio ideally should be 30% of your credit limit. High credit utilisation on a regular basis makes you appear financially irresponsible to credit information bureaus. Clearing your credit card dues in full improves two vital factors of your credit score- payment history and credit utilisation ratio.