Why pay more than minimum with 0% APR?

[Anonymous]

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

[Anonymous]

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. 

[Anonymous]

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@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.

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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.

[Anonymous]

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@Anonymous wrote:

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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.

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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!

[Anonymous]

$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.

[FinStar]

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@Anonymous wrote:

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@Anonymous wrote:

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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.

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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!

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+1.  This pretty much.

[NRB525]

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.

[UpperNwGuy]

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.

[Blackswizz750]

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.

[FlaDude]

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@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.  

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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.