Anytime your credit card payments are past due, your credit score is at risk. Dealing with past-due bills as soon as possible is an important part of mitigating credit score damage, but just how you should deal with those bills is not always clear. Whether you should pay in full or make payments depends on how delinquent your accounts are and your financial situation.
When Payments Work
If you missed a single credit card payment, it is not necessarily time to go into panic mode. Although your creditor may report a 30-day past due to the credit bureaus, dinging your credit report, you can stop future damage simply by making that past-due payment, plus any late and overlimit fees associated with your skipped payment, to bring your account current. Paying off your account in full isn't necessary here, unless your prefer to bring it down to zero. If your account is more delinquent, more serious damage is being done to your credit. Still, provided you communicate with your creditor, you could still opt to make a one-time payment for your entire overdue amount, rather than the entire balance, to bring your account current. If your account is in collections, which usually happens after 180 days of nonpayment, full payment on your account may be your only option.
Full Payment Pros
Even when you don't have to pay your account in full to save your credit, there are some benefits of doing just that. Part of your credit score is based on your credit versus debt ratio - in other words, how much of your available credit are you using. Paying an account in full keeps that ratio low, which gives your credit score a boost. This lower score means lower interest rates for you, which means future credit will be less costly.
Full Payment Cons
Cash flow is a disadvantage of full payment. Can you comfortably pay off your account and not go delinquent on any of your other bills? Don't risk secured debt payments, like your mortgage or car payment, to pay off an unsecured debt, like a credit card. Another disadvantage is that some credit card companies don't report zero balance cards to the credit bureaus, leaving the last report they sent sitting there indefinitely. If that last report was a past-due notice, it could drag down your score for a long time. If you do pay in full, check your credit report carefully to make sure your credit card company updates its report to reflect your zero balance and to show that your account is in good standing.
Beware Settlements
If your account is seriously past due, your creditor may offer you a debt settlement. Under a settlement, you make a lump-sum payment for less than the amount owed, and the credit card company closes the account, accepting that payment as payment in full. The rub is that if it reports the account as settled to the credit bureaus, anyone who pulls your report will know that you paid less than was owed on the account. Settlements can affect your score as deeply as a bankruptcy. If you do accept a settlement, negotiate with your creditor first so that it will report your account as paid in full rather than settled.
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