If you’re only making a minimum payment consistently lower than your monthly spend + interest, your utilization will go up very quickly and you’ll look like a credit risk. This pattern is also not sustainable for the consumer; eventually they’ll hit their credit limit.
On the other hand, if you’re consistently maxing out your credit cards, you also look like a credit risk even if to date you’ve paid every month in full and on time. The bank sets credit limits based on what they see as a safe maximum given your credit history & income, so riding what’s supposed to be a maximum is worrisome.
The difference is that the bank will let you keep doing the latter indefinitely, they just won’t be as like to grant you any new credit.
As for why banks don’t want to flag low-utilization, minimum-payment accounts earlier, I assume they’re just not a serious problem: Truly marginal users eventually default and get their cards deactivated at little cost to the bank, others who use the cards only on “special occasions” and pay out over time at unfortunate levels of interest make them money.
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If you’re only making a minimum payment consistently lower than your monthly spend + interest, your utilization will go up very quickly and you’ll look like a credit risk. This pattern is also not sustainable for the consumer; eventually they’ll hit their credit limit.
On the other hand, if you’re consistently maxing out your credit cards, you also look like a credit risk even if to date you’ve paid every month in full and on time. The bank sets credit limits based on what they see as a safe maximum given your credit history & income, so riding what’s supposed to be a maximum is worrisome.
The difference is that the bank will let you keep doing the latter indefinitely, they just won’t be as like to grant you any new credit.
As for why banks don’t want to flag low-utilization, minimum-payment accounts earlier, I assume they’re just not a serious problem: Truly marginal users eventually default and get their cards deactivated at little cost to the bank, others who use the cards only on “special occasions” and pay out over time at unfortunate levels of interest make them money.