Here's Why Making Your Minimum Credit Card Payments May Not Be Enough to Save Your Credit Score


Having a great credit score could do a lot of good things for your finances. It could not only make you more likely to get approved for a personal loan, auto loan, or mortgage, but it could also leave you with a lower interest rate on one. The result? Ongoing savings.

You may have heard that if you want to boost your credit score or keep an already solid score in good shape, that you must pay your debts on time. And that’s true. Your payment history carries more weight than any other factor when calculating your credit score. It’s worth 35% of your FICO® Score.

But if you only make your minimum payments on your credit cards each month, you may end up hurting your credit — even if every single payment is made on time. Here’s why.

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When your credit utilization gets too high

While your payment history carries the most weight in calculating your credit score, your credit utilization ratio is a close second. That number accounts for 30% of your credit score, and it measures how much of your available revolving credit you’re using at once.

If you have a $10,000 credit limit across all of your cards and owe $3,000, you’re at 30% utilization, which is generally considered the high end for a favorable ratio — meaning, once your utilization goes beyond that point, your credit score could suffer. But if you owe $1,000 on a $10,000 credit card balance, a ratio that low (10%) could give your credit score a boost.

So here’s the problem with only making your minimum credit card payments. If you stick to that system, between added charges and accumulating interest, your credit card balances have the potential to grow. That could drive your credit utilization ratio into unfavorable territory, resulting in a hit to your credit score. On the other hand, whittling down your total balance could help your credit score improve.

Of course, from a non-credit-score perspective, it’s extremely beneficial to pay down your credit cards and not just stick to your minimum payments because that could help you avoid getting trapped in a cycle of debt. The longer you carry your balances and the higher they are, the more interest you accrue and the more you’ll have to pay off over time.

Setting yourself up to make larger credit card payments

You may be in the habit of only making your minimum monthly payments on your credit cards because that’s all you can afford. But a few changes could put you in a better position to get ahead of that debt.

First, do a deep dive into your spending. Review your expenses from the past few months and see if there are some you can scale back on or slash without impacting your happiness.

If there’s a streaming service you barely watch these days costing you $20 a month, let it go. That’s $20 that can go toward your outstanding debt. And if you currently spend $200 a month on takeout, cutting that down to $100 might help you get ahead of your balances, all the while still giving you the occasional break from cooking.

Another option is to look to the gig economy for extra income. Your schedule may be busy and not super conducive to working a side hustle. But if you push yourself to hold one down for just a few months, you might make great headway on your debt. You can then cut out that side gig once your debt is a thing of the past.

Being timely with your minimum credit card payments could, to some degree, help your credit score improve, since timely payments carry a lot of weight. But if your balance grows too large, you risk credit score damage. So your goal should be to not only make your minimums on time, but also, make payments beyond those minimums so your debt is whittled down as quickly as possible.

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