The Impact of Minimum Payments on Your Credit Score

A woman pays bills on a tablet

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Protecting your credit score is one of the best things you can do for your financial life. A good credit score not only makes it easier to get credit-based applications approved but also saves you money on interest and security deposits. You may already know that payment history is one of the most important factors of your credit score, accounting for 35 percent of your FICO score. But does the payment amount matter? And more specifically, do minimum payments hurt your credit score?

How Minimum Payments Impact Your Credit Score

One of the things that makes credit cards attractive is that you don't have to pay off the entire balance at once. Your credit card issuer only requires you to pay a small portion of your balance each month. This minimum payment amount is listed on your monthly credit card statement and can vary depending on your credit card balance and any fees that are due. If you don’t have a lot of money to put towards your credit card payment, making the minimum payment may be the only option to keep your account in good standing.

First, the good news. The amount of your last payment is listed on your credit report, but credit scoring calculations don’t consider the amount of your credit card (or loan) payments in your credit score. From that standpoint, making the minimum payment doesn’t hurt your credit score at all. As long as you’re making at least the minimum payment on time each month, you’re actually helping your credit score by building a consistent, positive payment history.

Here’s the not so good news. Part of your credit score considers how much of your credit is being used—your credit utilization. Using more of your credit limit can cost you several credit score points. The point loss is only temporary; reducing your balance quickly would help your credit score rebound.

The amount of debt you're carrying is 30% of your FICO score. For credit cards, the credit scoring calculation considers the balances on individual credit cards and your aggregate balance across all your credit cards.

When you pay only the minimum, your balance only reduces by a little and a high credit utilization will continue to hurt your credit score. And if you're paying only the minimum and making additional purchases on your card each month, your credit score is likely to suffer because your balance grows rather than shrinks. On the other hand, if you have a low balance--say 30 percent of your credit limit or less--and you pay only the minimum, your credit score is probably safe as far as credit utilization goes.

Paying your full balance rather than making the minimum payment can help your credit score, but it's not necessarily the payment amount that helps. Paying your full balance and have a zero balance reflected on your credit report lowers your credit utilization and can boost your credit score.

The Benefit of Paying More Than the Minimum

Even though making the minimum payment may not hurt your credit score, there are benefits to paying more--like reducing your balance faster and saving money on interest. As often as you can, put more towards your balance. The exception is when you’re paying the minimum on some credit cards (and a lump sum on another) as part of a get out of debt plan.

Since your last payment is included on your credit report, some creditors and lenders may consider that when they're reviewing your application. Generally speaking, a person who pays just the minimum, especially on a high balance, could be considered a risky borrower and may be turned down.

Article Sources

  1. FINRA. "How Your Credit Score Impacts Your Financial Future." Accessed Jan. 10, 2020.

  2. Capital One. "Credit Card Minimum Payments Explained." Accessed Jan. 10, 2020.

  3. MyFICO. "Amounts Owed." Accessed Jan. 10, 2020.

  4. Experian. "What Is a Credit Utilization Rate?" Accessed Jan. 10, 2020.