When it comes to paying off your credit card, there are two leading schools of thought: full payment and partial payment. Both have pros and cons, but which is best for your credit score?

Method 1: Paying your balance off in full every month

Pros:

• You won’t accrue debt. If your balances are $0 at the close of every statement, you’ll never accrue interest. 
• You’ll improve your credit score—the less outstanding debt you have, the higher your credit utilization rate. You may want to consider a popular method like using a personal loan to pay off debt and this includes credit card debt. 
• You’ll be less likely to default on your debt. Debt creates a slippery slope that quickly gets people in over their heads and unable to pay back what they owe. Since you’ll never carry a balance, your chances of defaulting are slim. 

Cons:

• It can be challenging to come up with the money to make a full payment, especially if you’ve spent more than you made throughout the month.
• You may not be able to afford all of your bills if you put all your money towards paying off your credit card in full. If you run into this problem, you’ll need to cut expenses or alter your budget to ensure you have enough money to cover your debt and other necessities. 

Method 2: Paying the minimum or making partial payments

Pros:

• You’ll need less money every month to make payments on time. There are multiple ways you can use partial payments as a debt payoff strategy. 
• Consider popular methods for paying off debt in increments to see which is right for your situation. If you’re on a tight budget, this is a better strategy to take than avoiding making payments. 
• You can put money towards emergency savings while also paying your bills. Emergency funds ensure cash is available when you need it, which can help you avoid going into debt in the future. 

Cons:

• You’ll accrue interest on your outstanding balances. 
• Minimum payments are often eaten up by the interest on any balance you carry over, which can be demotivating if you’re trying to get out of debt. 
• It will take you a long time to become debt-free. The longer you carry a balance, the more interest you’ll accrue. The more interest you accrue, the more time it’ll take to get your balance back to $0.
• Your interest rates could change over time due to market conditions, raising your debt even if you haven’t made additional charges. 

Which method is better for your credit score?

It can be tempting to make partial payments on your debt each month, but this strategy could have a negative effect long term. Making only partial payments can increase your debt burden since it will take longer to pay it off.

The two most significant factors that affect your credit score are the number of late payments made and your credit utilization ratio. Credit utilization is determined by dividing the amount of debt you carry over the total amount of available credit. Experts recommend having a utilization ratio of 20% or lower. However, the best credit scores typically have a utilization ratio of 10% or less. Making only partial payments could end up lowering your credit score because of your increased utilization rate. A better approach is to make full payments on your debt every month, which will help you get out of debt faster and improve your credit score.

The bottom line

Paying your balances off in full every month isn’t easy, especially if you’re on a fixed income. But if you want to have the best credit score possible, you should make it a habit to pay in full instead of only paying the minimum or partial payment. However, a partial payment is still better for your credit than not paying anything at all, so do the best you can with what you have and commit to changing the way you spend money so that you’ll become debt-free as quickly as possible.