Does Paying the Minimum Payment Hurt Your Credit Score?

One of the factors that makes credit cards a flexible way to pay is the option to choose a low minimum payment over paying the full balance. If you’re on a tight budget or going through a temporary loss of income, only paying the minimum could give you the breathing room you need.

But while it could help you free up some cash while avoiding big damage to your credit score, minimum payments aren't enough to get you out of credit card debt. It’s a good idea to know the extra costs and long-term risks of only paying the minimum on your credit cards. 

Freedom Debt Relief is not a Credit Repair Organization and does not provide or offer services or advice to repair, modify, or improve your credit.

How Do Minimum Payments Affect Your Credit Score?

The minimum payment on your credit card is just that: the minimum you can pay and keep your account in good standing. So, making minimum payments on your credit cards is how you protect your credit scores from missed payments.

On-time payments are the biggest factor in your credit score, so this is definitely important. Plus, minimum payments make sure you avoid late fees on your accounts.

However, if your credit card balance keeps growing, those unpaid balances could end up costing you in other ways. That’s because minimum payments keep accounts current, but they don’t actually help you pay down the debt. 

If you only pay minimums on credit cards, your balances will decrease more slowly—or might even keep growing. The minimum is designed to cover interest fees, not necessarily to help you pay down your debt.

Higher balances mean more interest, which makes your debt grow even faster. The more you owe, the larger your minimums, and the harder it could be to keep up with even the minimum payments. It could be a vicious cycle.

Additionally, those high balances could be hurting your credit score even if you're making your minimums. The second most important factor in your credit score is credit utilization: how much credit you use compared to your overall available credit limits. High utilization is bad for your credit scores.  

Bottom line: Paying only the minimum is a good way to protect your payment history, but it might work against your credit utilization ratio. Don’t assume your credit score will stay steady if you’re only paying minimums. 

How Credit Card Minimum Payments Work

That minimum payment dollar amount on your credit card bill might seem surprisingly small compared to your overall balance. Here’s why: minimum payments are calculated based on a small percentage of your balance, or a flat dollar amount—whichever is higher. 

The exact details of your credit card minimum payment are in your cardholder agreement. A typical example might be 2% to 4% of your total balance. Some credit cards might set a minimum payment based on 1% of your total balance, plus interest and fees. Or if your balance is below a certain level, the credit card company will set a minimum payment that’s a fixed amount, such as $25 or $30. 

For example, if you owe $5,000 on a credit card, your minimum payment might be $100 (2% of the total balance). If you owe $500 on a credit card, your minimum payment might be $30, since that’s higher than 2% of $500 ($10).  

If you only make minimum payments on a credit card, the balance only goes down by a small amount because most of that minimum payment goes toward interest and fees instead of reducing principal on your credit card debt. Making on-time minimum payments is good, but they won’t help you get rid of debt quickly. 

Why High Credit Utilization Affects Your Credit

Credit utilization—how much of your available revolving credit you use—is important to your credit score. High credit utilization could signal to lenders that you’re having a hard time paying your bills and may be a risky borrower. So, high credit utilization can lower your credit score, while lower utilization generally supports higher credit scores. 

There’s no single credit utilization number that automatically dings your credit score, but people with high scores tend to have utilization rates below 10%. Utilization is captured in the moment and can change any time your card issuer reports a new balance to the credit bureaus.

Making only minimum payments means your utilization won’t change much over time. In other words, every month the credit bureaus will note large, lingering balances. A trend of high utilization could cause even more credit damage depending on the scoring model. For example, VantageScore is a widely used credit score model that takes a close look at trended data over time. 

Other Financial Risks of Minimum Payments

If you’re in a short-term cash crunch, making minimum payments could be a smart move. But routinely making only minimums could bring some risk into your financial life. Let’s take a look at the full picture of how making just minimum payments could affect your finances. 

You pay more interest over time

Only making minimum payments typically means you’ll pay a lot more interest fees. Here's why:

• Credit card interest is calculated based on your average daily balance. Minimum payments keep your balances high, which means a little more interest each day.

• Your balance decreases slowly—or not at all. Most to all of your minimum payment goes to interest, not principal. Only making minimum payments leaves your balances high, which means more interest.

• You stay in debt longer. Since minimum payments aren't designed to pay down your debt, paying only the minimum likely means you’ll stay in credit card debt significantly longer. Based on your balance and credit card interest rate, paying only the minimums might take you many months or even years longer to get rid of credit card debt compared to making higher payments on your balance. 

Less financial flexibility

Credit cards can be a great tool for financial flexibility. But carrying high balances on your cards takes away this room to maneuver. The higher your balance, the less available credit you have to work with. 

Plus, your minimum payment grows with your balance. This ties up a bigger chunk of your budget each month. By paying more than the minimums on your credit cards, you could reduce debt faster and get your flexibility back. 

Slower progress toward financial goals

If you can only afford minimum payments on credit cards, that’s a sign that something in your financial life probably needs to change. Money going to credit card interest can’t be put toward other goals, like saving for a home, building an emergency fund, or investing for retirement.

If you’re tired of having so much of your money gobbled up by credit card interest, now could be a motivating time to shake up your financial life and get rid of debt. Try a budgeting app and make a debt payoff plan. If your debts are becoming unmanageable, this might be a good opportunity to look for other ways to tackle your credit card debt.

What to Do When You Can Only Afford Minimum Payments

If you’re only able to afford minimum payments on credit cards, realize you have choices, options, and hopeful paths forward. No need to feel bad or worry you’re stuck making minimum payments, because it’s in your power to make meaningful change.

Here are a few actionable next steps to get to a better situation with your credit card debt. 

Free up extra cash in your budget or add more income

One of the best ways to make progress paying off credit card debt is finding extra cash in your budget. Alternatively, picking up an extra shift or starting a side hustle could help you find a little bit extra. 

Any extra money can be used to pay more than the minimum balance. Even small amounts above the minimum, like an extra $10 or $20 per month, could make a big difference in reducing your interest costs. 

And you don’t have to wait until your credit card bill is due. You can make extra payments any time in the credit card statement cycle, as long as you make at least your minimum payment before the due date. 

If you have multiple credit cards, consider paying the minimum on all the cards, then putting any extra money toward your highest-interest balance. This is a good way to build momentum and cut down on total interest fees. 

Getting rid of debt means you might have to make some temporary sacrifices and tough choices to cut your spending, bring more money in—or both. Remember that those changes can be temporary. You’re making a commitment to a better financial future. 

Contact your card issuer

If you’re in a temporary cash crunch rather than a long-term situation, you might want to talk with your credit card company about hardship programs. Some credit card companies offer temporary relief programs for people who are struggling. 

This could include credit card forbearance, where you might be allowed to pause or reduce credit card payments for a limited time. Not everyone qualifies for this type of debt relief, and the exact details depend on the credit card issuer. If you’re struggling to make minimum payments, it could be a good idea to contact your creditor and ask for payment options. 

It's best if you contact your creditor before you start missing payments. In any case, the sooner you get in touch, the more options you'll likely have.

Consider debt relief options

If you’re experiencing financial hardship, like a lost job or serious medical event, that makes even your minimums hard to meet, you might want to start looking for credit card debt relief. One common form of debt relief is debt settlement. This involves asking creditors to accept less than you owe to get rid of your debt. 

You can try to do debt settlement negotiations on your own. Some people might prefer to work with a professional debt relief company to handle the negotiations.

Debt settlement could get rid of your debt for less and faster than making minimum payments. You do still need to make monthly payments into a debt settlement account, however, and you'll pay a settlement fee if you use a professional service.

Next Steps If You’re Making Minimum Payments

Making only minimum payments on a credit card is better than not making payments. Minimum payments keep your account current so you avoid late fees and the credit damage from missed payments. But paying only the minimum isn't ideal; it could cut into your long-term progress when it comes to paying off your debt. 

If you want to break the routine of minimum payments, try to use this as an opportunity to change your financial life. There’s no single right way to get rid of debt. Choosing a strategy to get rid of debt faster—and then taking action—is what matters most.