topic Re: Why pay more than minimum with 0% APR? in Credit Cards

Why pay more than minimum with 0% APR?

Anonymous — Fri, 08 Mar 2019 16:17:51 GMT

Hello friends, first time/long time on myFICO.

I just opened a Discover it card, which comes with the introductory offer of 14 months of 0% APR. I have adequate savings & budgeting ability to pay only the minimum each month until the end of the intro period, and then pay in full -- thereby making some interest profit in the meantime by keeping the equivalent balance in a high-earning savings account.

However, perusing the forum here, I see some commentary that paying only the minimum payment is seen as risky by some lenders and can lead to adverse action, to include reduction of CL, etc., and recommendations to pay 2x-3x the minimum payments for safety. However, I couldn't find any concrete info or datapoints to support this view. Anyone have anything solid on why this is the case, where exactly the lines are to trigger action, and DPs from Discover specifically?

To be clear, I'm not worried about the utilization impact on my credit score (easily reversed) or the potential to pay interest in the end (I won't). I just want to maximize the savings on the 0% APR offer and ideally pay not a penny more than the minimum every month, so long as there are no negative repercussions. Thanks!

Examples of the discussions I'm referring to:

https://ficoforums.myfico.com/t5/Credit-Cards/0-APR-how-do-minimum-payments-work/m-p/3967610

https://ficoforums.myfico.com/t5/Credit-Cards/question-about-0-apr/m-p/4979273

https://ficoforums.myfico.com/t5/Credit-Cards/Amex-and-aggressive-use-of-0-promos/m-p/5223146

Re: Why pay more than minimum with 0% APR?

Anonymous — Fri, 08 Mar 2019 16:27:43 GMT

I wouldn’t really be super worried about this with Discover or Capital One, they both are very tolerant of balances carried. It’s more Chase and Amex that don’t like customers who carry a balance, particularly if it’s not going down.

Obviously don’t max out the card though. Even with a 0% offer, try to keep it under control. 68.9% or less is reasonable if you transfer a balance or have a large purchase. 88.9% or higher is entering the danger zone not only for scoring but with the credit card company.

As long as you aren’t running balances on multiple cards or missing payments though, Disco is unlikely to care.

Re: Why pay more than minimum with 0% APR?

Anonymous — Fri, 08 Mar 2019 17:13:36 GMT

@Anonymous wrote:

However, perusing the forum here, I see some commentary that paying only the minimum payment is seen as risky by some lenders and can lead to adverse action, to include reduction of CL, etc., and recommendations to pay 2x-3x the minimum payments for safety.

While paying 2x-3x the minimum is a sign of healthy credit behavior in the case of a BT/0% offer, it's definitely not necessary. It is smart however to pay slightly above the minimum, even $2 more is fine. The reason here is that it's not unrealistic for lenders to keep data on this and/or have their internal algorithms look at it. Having the algorithm see that you "pay only the minimum" month after month is different than it seeing that you pay "more than the minimum" every month. At the expense of a few bucks, it's just simply a smart move to always pay a little more than the minimum.

Re: Why pay more than minimum with 0% APR?

Anonymous — Fri, 08 Mar 2019 19:01:20 GMT

@Anonymous wrote:
hile paying 2x-3x the minimum is a sign of healthy credit behavior in the case of a BT/0% offer, it's definitely not necessary. It is smart however to pay slightly above the minimum, even $2 more is fine. The reason here is that it's not unrealistic for lenders to keep data on this and/or have their internal algorithms look at it. Having the algorithm see that you "pay only the minimum" month after month is different than it seeing that you pay "more than the minimum" every month. At the expense of a few bucks, it's just simply a smart move to always pay a little more than the minimum.

But that is based on assumptions. While the test could certainly be boolean (minimum or not, it could also be more sophisticated, such as 'will pay off within X months" in which case $2 more might not be fine. Or even depending on whether the card is still used during this period, so that the company is at least still getting swipe fees (and if the grace period has been waived, interest).

But my take is that this is another of the situations where you are OK if you don't need credit, and might get AA if you do! If your profile is strong, paying the minimum might be fine (and in the worst case, AA isn't going to hurt you that much). If on the other hand the minimum is really all you can afford to pay, perhaps on several cards, then the flags will go up and damaging AA becomes more likely.

And yes, no proof for this either!

Re: Why pay more than minimum with 0% APR?

Anonymous — Fri, 08 Mar 2019 20:39:21 GMT

$2 more might not be fine, but $2 more certainly isn't worse than paying just the minimum and can only help someone that's doing what they can to avoid AA. Again, the $2 here is money well spent that isn't going to break the bank of anyone.

Re: Why pay more than minimum with 0% APR?

FinStar — Fri, 08 Mar 2019 20:42:45 GMT

@Anonymous wrote:
@Anonymous wrote:
hile paying 2x-3x the minimum is a sign of healthy credit behavior in the case of a BT/0% offer, it's definitely not necessary. It is smart however to pay slightly above the minimum, even $2 more is fine. The reason here is that it's not unrealistic for lenders to keep data on this and/or have their internal algorithms look at it. Having the algorithm see that you "pay only the minimum" month after month is different than it seeing that you pay "more than the minimum" every month. At the expense of a few bucks, it's just simply a smart move to always pay a little more than the minimum.
But that is based on assumptions. While the test could certainly be boolean (minimum or not, it could also be more sophisticated, such as 'will pay off within X months" in which case $2 more might not be fine. Or even depending on whether the card is still used during this period, so that the company is at least still getting swipe fees (and if the grace period has been waived, interest).

But my take is that this is another of the situations where you are OK if you don't need credit, and might get AA if you do! If your profile is strong, paying the minimum might be fine (and in the worst case, AA isn't going to hurt you that much). If on the other hand the minimum is really all you can afford to pay, perhaps on several cards, then the flags will go up and damaging AA becomes more likely.

And yes, no proof for this either!

+1. This pretty much.

Re: Why pay more than minimum with 0% APR?

NRB525 — Fri, 08 Mar 2019 20:47:36 GMT

OP , as with most questions about credit the answer is “it all depends”.

What is your Discover limit?
How much are you putting on the card with a BT and separately with new spending?
How much of a max balance do you expect to see on the Discover?
What is your history with other cards, with carrying larger balances?
What other cards do you have and what are the ongoing statement balances on those cards?

Someone with a $5k Discover who carries $1k at a 0% offer, and two other cards at virtually no usage is in a significantly lower risk category from someone with a $20k Discover, carrying $18k and has five other cards at well over 50% utilization.

Re: Why pay more than minimum with 0% APR?

UpperNwGuy — Fri, 08 Mar 2019 21:11:35 GMT

Back in the days when I made use of 0% balance transfers, I would pay them off in equal monthly installments that got the balance to zero one full month before the 0% period expired.

Re: Why pay more than minimum with 0% APR?

Blackswizz750 — Fri, 08 Mar 2019 21:25:51 GMT

I would put more than the min payment yet to 1/14 of the balance. The reason being that life happens and sometime budgets change. Disco is OK with balances as long as you are maxing out other cards too.

Re: Why pay more than minimum with 0% APR?

FlaDude — Fri, 08 Mar 2019 22:18:05 GMT

@Anonymous wrote:
I wouldn’t really be super worried about this with Discover or Capital One, they both are very tolerant of balances carried. It’s more Chase and Amex that don’t like customers who carry a balance, particularly if it’s not going down.

This is definately a YMMV situation. My Amex Blue ($31k CL), Chase Amazon ($10k CL) and Slate (7k CL) were all pretty much maxed out for years and I never had any AA from any credit card companies including those. I did get a 3k auto CL on the Amazon card when I paid it off.

Re: Why pay more than minimum with 0% APR?

KDKobes — Fri, 08 Mar 2019 22:44:07 GMT

I always pay as much as I can regardless of it being 0%apr. Most creditors don’t want to see you carry a balance for long periods of time let alone make only the minimum payment. BUT it shouldn’t matter as long as you pay the balance before the 0% apr is over.
I use 0% differently...for instance my PayPal credit or Furniture Row Card always has 0% apr offers but I calculate my payments by dividing the amount I put on it over the 0% apr period to avoid interest. BUT I did take adavantage of my BBVA 0%apr recently. Instead of pulling a smaller unsecured loan right now I put the expenditure on my BBVA card & will pay the most I can until the 0% is almost up then I will do the unsecured loan....saves me a lot on interest.

Re: Why pay more than minimum with 0% APR?

Anonymous — Sat, 09 Mar 2019 00:04:28 GMT

Thanks for the feedback, everyone. More details on my specific situation:

* $8,000 limit on this card.

* Intended use is just for purchases in the quarterly 5% cashback categories, which max at $6,000 for the year, so not anticipating more than 75% utilization by the end of the first year intro APR. No balance transfers.

* Never carried a balance on any other card, always PIF.

* Eight other credit cards: Alliant Cashback, Barclays Uber, Capital One Quicksilver, Chase Amazon, Chase Freedom, PenFed Platinum Rewards, U.S. Bank Cash+, U.S. Bank REI.

* Typical revolving usage across all cards is $2-5k against a combined $122,000 credit limit.

* Good credit history and scores ranging 780-820 depending on model, bureau, and moment in time.

Re: Why pay more than minimum with 0% APR?

Anonymous — Sat, 09 Mar 2019 03:18:52 GMT

@FlaDude wrote:
@Anonymous wrote:
I wouldn’t really be super worried about this with Discover or Capital One, they both are very tolerant of balances carried. It’s more Chase and Amex that don’t like customers who carry a balance, particularly if it’s not going down.
This is definately a YMMV situation. My Amex Blue ($31k CL), Chase Amazon ($10k CL) and Slate (7k CL) were all pretty much maxed out for years and I never had any AA from any credit card companies including those. I did get a 3k auto CL on the Amazon card when I paid it off.

Everything is YMMV. If your profile supports it, they’ll just milk you for interest endlessly. But there are plenty of data points of people opening a new card with Amex and maxing it out and getting balance chased or having CLD on their card for having high balances on other cards. Chase doesn’t seem as common but it’s not unheard of.

Disco and Capital One are very tolerant of this behavior. Heck if you look at the interest that Capital One and Disco take in versus Chase and Amex it becomes clear that lots of interest is their business model (although not as much as Sync and Comenity lol).

Re: Why pay more than minimum with 0% APR?

Anonymous — Sat, 09 Mar 2019 03:21:20 GMT

@Anonymous wrote:
Thanks for the feedback, everyone. More details on my specific situation:

* $8,000 limit on this card.
* Intended use is just for purchases in the quarterly 5% cashback categories, which max at $6,000 for the year, so not anticipating more than 75% utilization by the end of the first year intro APR. No balance transfers.
* Never carried a balance on any other card, always PIF.
* Eight other credit cards: Alliant Cashback, Barclays Uber, Capital One Quicksilver, Chase Amazon, Chase Freedom, PenFed Platinum Rewards, U.S. Bank Cash+, U.S. Bank REI.
* Typical revolving usage across all cards is $2-5k against a combined $122,000 credit limit.
* Good credit history and scores ranging 780-820 depending on model, bureau, and moment in time.

With that profile, you have nothing to worry about I would think. If you really are concerned about it, tossing a couple extra bucks like BBS suggested would be a smart thing to do.

Re: Why pay more than minimum with 0% APR?

Anonymous — Sat, 09 Mar 2019 03:22:40 GMT

I have yet to worry about paying more than minimums on any of the money I'm floating on 0% interest cards (~$36k) to maximize my interest returns. While this can be a ymmv scenario, I've been carrying at least that much for more than a year and the only thing I've seen out of it is a higher frequency of 0% BT offers. I keep my utilization under 60% on any individual card I'm carrying a balance on and keep my overall utilazation across all of my cards under 30%. I have seen a lot of people worry about doing such on here but I have yet to personally see any negative consequence of those actions. I still apply and get my SP CLI's as well. My personal opinion is that if you just ensure you always have the money available to pay off the cards stashed in a high yield savings account then the worst that can happen is they limit chase you until it's paid off and you've still accrued whatever free interest in that timeframe.

Again, could be ymmv but it doesn't scare or concern me in the slightest anymore.

Re: Why pay more than minimum with 0% APR?

Meanmchine — Sat, 09 Mar 2019 04:08:44 GMT

@Saeren

" Disco and Capital One are very tolerant of this behavior. Heck if you look at the interest that Capital One and Disco take in versus Chase and Amex it becomes clear that lots of interest is their business model (although not as much as Sync and Comenity lol). "

Capital One doesnt mind balances as long as you make big payments. If you only pay alittle over the minimum, you'll never a CLI from em.

Re: Why pay more than minimum with 0% APR?

Anonymous — Sat, 09 Mar 2019 04:13:38 GMT

@Meanmchine wrote:
@Saeren

" Disco and Capital One are very tolerant of this behavior. Heck if you look at the interest that Capital One and Disco take in versus Chase and Amex it becomes clear that lots of interest is their business model (although not as much as Sync and Comenity lol). "

Capital One doesnt mind balances as long as you make big payments. If you only pay alittle over the minimum, you'll never a CLI from em.

You’ll never get a CLI from them anyway most of the time, I was just talking in terms of direct AA they aren’t known for it.

Re: Why pay more than minimum with 0% APR?

Anonymous — Sat, 09 Mar 2019 05:41:19 GMT

@Anonymous wrote:
Thanks for the feedback, everyone. More details on my specific situation:

* $8,000 limit on this card.
* Intended use is just for purchases in the quarterly 5% cashback categories, which max at $6,000 for the year, so not anticipating more than 75% utilization by the end of the first year intro APR. No balance transfers.
* Never carried a balance on any other card, always PIF.
* Eight other credit cards: Alliant Cashback, Barclays Uber, Capital One Quicksilver, Chase Amazon, Chase Freedom, PenFed Platinum Rewards, U.S. Bank Cash+, U.S. Bank REI.
* Typical revolving usage across all cards is $2-5k against a combined $122,000 credit limit.
* Good credit history and scores ranging 780-820 depending on model, bureau, and moment in time.

2.25 percent of 6k is only $150. I don't really see what you are gaining with your strategy. And you would have to pay income tax on the $150 of interest earnings so you would wind up with even up with less. There are ton of credit cards that you can get cash sign up bonuses for of more cash and you don't have to pay taxes on the amount.

Re: Why pay more than minimum with 0% APR?

frugal47374 — Sat, 09 Mar 2019 06:13:12 GMT

Let me add another datapoint.

I never pay more than the minimum on any 0% offer. I will happily max out a card. When SDFCU sends me a check that I can write to myself for 0%, I write it for my credit limit. I currently have 0% deals with AMEX, Citi and SDFCU. I just paid off a Chase one.

I have never experienced any adverse action because of this. (Of course, my FICO score goes up and down a lot.)

I wouldn't do this if I had any doubt that I could pay off the card when the 0% deal ended.

Re: Why pay more than minimum with 0% APR?

Brian_Earl_Spilner — Sat, 09 Mar 2019 06:43:15 GMT

@FlaDude wrote:
@Anonymous wrote:
I wouldn’t really be super worried about this with Discover or Capital One, they both are very tolerant of balances carried. It’s more Chase and Amex that don’t like customers who carry a balance, particularly if it’s not going down.
This is definately a YMMV situation. My Amex Blue ($31k CL), Chase Amazon ($10k CL) and Slate (7k CL) were all pretty much maxed out for years and I never had any AA from any credit card companies including those. I did get a 3k auto CL on the Amazon card when I paid it off.

Amex works off of established behavior. If you've never let a balance report for 3 years, then let 95% report, that raises flags. If you always carry a balance they won't bat an eye as long as you make big enough payments. I don't think people get that. They're too afraid of AA. I've let my Delta report maxed since I got it. I also pay off the statement balance every month and have had no issues. In fact, when I first got the card, I would get "friendly reminders" when I got to $100 near my limit that I should make a payment. I haven't received one in months. My plan is to show them I need quite a bit more spending power when I request a CLI. Same applies to Chase. I had them for years before my rebuild and I never had issues with carrying a balance or occasionally maxing the limit.