Q&A: Can I protect my credit score if I can’t pay the card’s full balance?

Dear Opening Credits,
I have a mid-700s credit score after steadily paying my credit card in full for the past two years. However, this month I owe $1,500, and won’t be able to pay it off. I can only pay a portion, but don’t know how much. I’m currently looking for a permanent job and am working part-time. I’m worried my credit score will suffer if I don’t pay it off but also don’t want to leave myself with no cash for necessary expenses. Advice? – Abby

Dear Abby,

As long as you make at least the minimum payment, you’ve got the payment history portion of your credit score covered. But just making minimum payments won’t knock out that balance quickly as interest charges are applied. If you take a look at your statement, you’ll see a box that outlines exactly how long it will take to pay off that balance, as well as how much interest you’ll end up paying, by just making the minimum payment.

The credit score impact of carrying over a credit card balance instead of paying it off by the due date depends on another very important detail: the account’s credit line. After payment history, credit utilization – the amount you owe on a credit card compared to the credit line the issuer gave you – is the second weightiest factor in FICO and VantageScore calculations.

For example, if your credit limit is $1,500, you’ve used up 100 percent of the credit line. That would make you look like a risky borrower, so your scores would decline. On the other hand, if the credit limit is $15,000, and you owe $1,500, only 10 percent of the credit line is used, so your credit utilization ratio would not be in such a bad place.

There is a common misconception that a credit score will be fine as long as you owe less than 30 percent of the limit. In truth, there is no fixed threshold. Simply put, the less you owe, the better your scores will be, and zero debt is always best.

You don’t want to put yourself in a precarious financial position during your job search, so it’s wise to parcel out your funds carefully. If that means carrying over this debt for a while, so be it. However, you can minimize the damage a high balance can do to your credit scores with the following techniques.

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1. Request a higher limit.

If your debt is close to your credit limit, you can ask the issuer to increase your credit line. Your payment history and scores are good, so the issuer may oblige. The result would be a smaller utilization ratio, which would help preserve your credit rating.

A downside is the issuer may check your credit before granting you a higher credit line, resulting in a hard inquiry, which can knock your score down a few points for a year. However, you can ask your card issuer if you can qualify for a higher credit limit without a hard inquiry being generated, basing it instead on your excellent payment history.

The benefit of a higher credit line would outweigh the minor, temporary damage of a hard inquiry.

2. Sell unnecessary items to drive the debt down.

Look around your home to see if there’s anything you can part with. You may have electronics, a bicycle, sports equipment or jewelry that have just become clutter. In that case, this may be the perfect opportunity to sell your stuff through Craigslist or Facebook Marketplace, for example. Apply the profits to the credit card debt.

Any reduction in the balance is sure to make a positive difference in your credit utilization ratio, whether you’re maxed out or not.

3. Develop a sensible pay-off plan.

If you choose not to use any of the above methods, sit down and figure out how much you can reasonably apply to the credit card as a fixed payment above the minimum payment required.

Construct a spending budget based on your current income. Eliminate most of your extraneous expenses, but leave enough for unexpected bills.

Maybe you can free up $263 every month to send to this account. If so, you could be in the black in six months (assuming a 17 percent interest rate). That would reflect beautifully on your reports and scores.

Plug your numbers into this calculator for inspiration.

4. Ask a friend or family member for a loan.

I normally don’t suggest this, but if you have a close relationship with someone who can front you the $1,500 or a portion of the balance, you may feel better going in this direction.

Just be sure to write up a contract with the payment terms and conditions, and honor the agreement. This way you’ll protect your credit rating as well as a relationship.

If all else fails and you can only pay the minimum on your account until you secure the right position, that’s OK, too. With on-time payments, you’ll still satisfy the most important scoring factor, so you’ll have that working for you.

When you have a full-time job, you should have more flexibility to send larger payments until you hit a zero balance. Whatever you do, refrain from adding to the balance until you regain control of your finances once again.

I wish you good luck in your employment search!

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