Financial Advice

Does Only Making Minimum Payments Affect My Credit Score?

Minimum Payment on Credit Card

You probably know that doing the bare minimum isn’t likely to get you anywhere. Doing the bare minimum at work won’t lead to a promotion, and contributing as little as possible to a relationship won’t make your partner happy. And when it comes to paying off your credit card debt, doing the bare minimum — making a minimum payment — can actually do more harm than good.

What Is the Minimum Payment on a Credit Card?

Your monthly minimum payment is a portion or a percentage of your total balance on your credit card. At Bank of America, for example, the minimum payment for cardholders is 1 percent of their balance, plus any late fees and interest charges for the month.

If you own a credit card, you’ve likely been tempted to make the minimum payment listed on your statement instead of paying off the full amount. It sounds like an easy enough idea: just pay the minimal amount your provider asks for — maybe $20 to $25 — pay it on time, and avoid a late fee or penalty APR. What many people might not realize, however, is that this is one of the biggest credit card mistakes they can make. By making just the minimum payment, you could actually hurt your credit score instead of improve it.

Read: I’ve Lost My Job and Can’t Make Credit Card Payments — What Do I Do?

4 Reasons Why Making the Minimum Payment Is Not Enough

Paying more than the minimum can help you raise your credit score, save money and avoid debt. Now that we’re in week four of the Credit Score Challenge, see why you should go above and beyond your minimum payment:

1. Making the minimum payment doesn’t reduce your credit utilization.

With a credit card, you want to pay attention to your total balance in relationship to your credit limit. This is what’s known as your credit utilization ratio: the amount of credit you use compared to the amount of credit available to you.

For instance, if your credit limit is $9,000, and your total balance is $3,000, you’ve utilized about 33 percent of your available credit. In the credit world, it’s recommended that consumers stay at or below a 30 percent utilization ratio. Twenty percent is even better. Anything higher indicates that you’re relying too much on your credit, which can cause your credit score to fall.

“Consumers with high credit utilization and who use too high of a percentage of their available credit will see their scores drop,” writes Dan Rafter of Wise Piggy. “That utilization isn’t going to drop to desirable levels if you only make the minimum payment each month.” Also, lowering your credit utilization ratio won’t show many benefits if you don’t start making more than your minimum payments.

2. It leaves a bad impression on your lenders.

Charging too much on your credit cards might indicate to your provider that you’re using credit to live beyond your means. Combine this with making only the minimum payment each month, and it gives the impression that you’re putting in more effort on spending your lender’s money than you are in repaying it. This type of behavior is reflected on your credit report and, in turn, your credit score.

3. Making the minimum payment can keep you in debt.

If you’ve racked up enough debt, the minimum payment might never make a dent in it, especially if you continue charging your card. An outstanding balance will also be charged interest, making it even more difficult to pay off the debt. With each interest charge, your unpaid credit card balance will continue to grow every month.

For example, let’s say you have $1,000 charged on your credit card with an 18.00% APR. By only making the $25 monthly payment, it will take you more than five years (62 months) to pay off the debt. In addition, you’ll be paying more than $500 in interest. Do yourself a favor, and contribute more than $25 each month.

4. It can impact your other expenses.

Making the minimum payment can start a domino effect that keeps you in debt, hurts your credit and causes your bills to skyrocket due to the poor credit you’ve created. If you ever want to buy a house, a car or another big purchase, you might need help financing it. To get financing, you’ll likely want to turn to a bank for a loan.

But if your credit score is low because you haven’t been able to pay off your credit cards by making the minimum payment, you might get denied for that loan. And if you do get approved for a loan, there’s a good chance lenders will give you higher interest rates due to your poor credit.

Related: 5 Best Personal Loans for People With Poor Credit

How to Make More Than the Minimum Payment on Your Credit Card

If debt is a problem and the money to make more than the minimum payment is simply not there, take some of these suggestions to heart to free up some cash:

  • Start cutting back on expenses. Reduce or eliminate discretionary purchases that eat up your budget. Cook in instead of eating out, brew your own coffee in place of Starbucks, find low-cost or free entertainment, and forgo other luxury purchases. Use the extra savings to pay down your debt, even if it’s only $10 or $20 more than your minimum payment.
  • Be mindful of your spending. Avoid using a credit card to buy things you can’t afford to pay off monthly. Keep this rule in mind: If you can’t afford to make a purchase with a debit card, you can’t afford it and shouldn’t put it on credit. Too large of a credit card balance will be difficult to pay off even with the largest of payments.
  • Make more frequent payments. There’s no regulation preventing you from making multiple payments on your balance, and it can work to reducing your debt more quickly. Try making bi-monthly payments. Also, inquire if you can set up balance alert emails or texts so you’ll know when you’re approaching your credit utilization ratio.
  • Seek help. If credit card debt is a problem and exceeding your minimum payment is simply not an option, look for professional financial assistance. Groups like the National Foundation for Credit Counseling can connect you with certified counselors for help on managing and budgeting your money, getting out of debt and developing better credit habits.

Keep reading: How It’s Possible to Have a Perfect Payment History and Bad Credit 

To avoid interest charges and falling into debt, avoid carrying over a large balance every cycle on your credit card. Make payments, but don’t just do the bare minimum — make more than the minimum payment. An even better solution: Pay off your credit card in full every month.

This article originally appeared on Does Only Making Minimum Payments Affect My Credit Score?

This article by Paul Sisolak first appeared on and was distributed by the Personal Finance Syndication Network.