Will Paying the Minimum Hurt Your Credit Score? Here’s the Truth
Written by
Michael Keenan
Edited by
Emily Gadd
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Generally, paying only the minimum payment won’t hurt your credit score. This is because on-time payments make up a significant amount of your credit score.
However, carrying a balance on your credit cards can drive up your credit utilization. Overtime, only paying the minimum while carrying a high balance can negatively impact your credit score.
Paying the Minimum and Avoiding Late Payments
Paying at least the minimum ensures your credit card account stays current, which is crucial for your credit score.
- Payment history is a significant factor, accounting for 35% of your FICO score
- Even one missed payment can stay on your credit report for up to seven years and lower your credit score
- Making the minimum payment prevents late fees and negative marks on your credit report
Paying the Minimum With a Higher Credit Utilization
Paying only the minimum means carrying a balance, which increases your credit utilization ratio. This is the percentage of your credit limit you’re using.
- Credit utilization above 30% can lower your score, even if you make payments on time
- If you have a high balance compared to your credit limit, it signals to lenders that you may be overextended financially
- Keeping utilization below 10% is ideal for maintaining a strong credit score
Interest and Credit Utilization
When you only pay the minimum, the remainder accrues interest, making it harder to pay off over time.
- Credit cards typically have interest rates ranging from 15% to 30%, so balances can grow quickly
- Carrying a balance for months or years increases debt and makes it harder to improve your credit score
- If balances keep rising, it may become challenging to afford payments, which can lead to missed payments and potential credit damage
How Long Can You Pay Just the Minimum Without Harming Your Score?
In the short term, making minimum payments won’t hurt your credit score as long as you pay on time. However, relying on minimum payments for too long can cost you in the long run.
The short-term impact is that your credit score will remain stable if you keep utilization low and make payments on time. The long-term impact is that high balances and accumulating interest can lead to higher utilization and make your credit card harder to pay off.
If you consistently only pay the minimum, you may enter a cycle of debt where balances never seem to go down, making it harder to reach financial stability.
How to Reduce the Negative Impact of Minimum Payments
If you can only afford to make minimum payments for now, here’s how to protect your credit score:
1. Pay More Than the Minimum Whenever Possible
Even small additional payments make a big difference in reducing interest charges and paying down debt faster. For example, if you have a $5,000 dollar balance with a 20 percent interest rate and only pay the minimum, it could take more than 20 years to pay off.
- Make multiple payments per month to lower your balance faster
- Use extra income, such as tax refunds or bonuses, to pay down credit card debt
If you increase your payment to double the minimum, you can cut years off your repayment time and save thousands in interest.
2. Keep Credit Utilization Low
Reducing your balances helps keep credit utilization in a healthy range, improving your score.
- Limit spending to help keep your balance low
- Request a credit limit increase to improve your utilization ratio, just be sure not to increase spending
Other Debt-Payoff Strategies
If you’re struggling with high-interest debt, keep reading to learn about other strategies to pay off your debt faster:
- Balance transfer cards offer zero percent APR for an introductory period, allowing you to pay off debt interest-free
- Proven strategies to get out of debt
- Use a debt consolidation loan if you’re carrying debt from multiple credit cards
- Work with a credit counselor for financial education and a personalized repayment plan
FAQ
- Does paying only the minimum lower my credit score?
- Not immediately, but carrying a high balance can increase credit utilization, which may lower your score over time.
- How long can I pay just the minimum before it affects my credit?
- As long as you make on-time payments, your credit score won’t be directly affected. However, the longer you carry a high balance, the more you risk financial strain.
- Does carrying a balance improve my credit score?
- No, carrying a balance does not help your credit score. Paying off your balance in full each month is the best way to avoid interest and keep your credit utilization low.
- What happens if I only make the minimum payment every month?
- Your balance will grow due to interest charges, making it harder to pay off. Over time, this can increase your debt-to-income ratio and make it more difficult to qualify for loans.
- How can I pay off my credit card faster without hurting my budget?
- Consider making small extra payments, cutting unnecessary expenses, or using windfalls like tax refunds to reduce your balance. A balance transfer or debt repayment strategy can also help accelerate the process. Making only the minimum payment may seem like an easy solution, but it can lead to long-term financial challenges. Paying more whenever possible helps reduce debt faster, lowers interest costs, and improves financial health.
Natalie Campisi and Paul Sisolak contributed to the reporting for this article.
