Does Your Credit Score Go Down If You Pay the Minimum?

Credit scores indicate a consumer’s creditworthiness. Lenders use these scores, such as FICO Scores and VantageScores, to assess the risk of extending credit. They are derived from information in your credit reports, which detail your history with credit accounts and how you manage debt. Understanding how financial actions, including credit card payments, influence these scores is important for financial health.

Minimum Payments and Your Credit Score

Paying only the minimum amount due on a credit card does not directly cause your credit score to decrease. Making at least the minimum payment on time prevents negative marks for missed payments, which are detrimental to a credit score.

Consistently paying only the minimum means carrying a balance month-to-month. This practice can lead to higher outstanding balances over time because interest charges accrue on the unpaid portion of the debt. While not a direct hit to your score, carrying these balances can indirectly affect other components of your credit profile.

Credit Utilization and Its Impact

Credit utilization refers to the amount of credit you are using compared to your total available credit limit. It is expressed as a percentage and is a significant factor in credit scoring models, often 30% of your FICO Score. A high credit utilization ratio indicates you are using a large portion of your available credit, which lenders view as increased financial risk and can negatively impact your score.

Paying only the minimum amount due on a credit card can contribute to a high credit utilization ratio because your balance may not decrease significantly, or it might even increase due to interest. Financial experts recommend keeping your overall credit utilization below 30% to avoid a negative impact on your score. For instance, if you have a total credit limit of $10,000 across all your cards, maintaining a combined balance below $3,000 is advisable.

The Role of Payment History

Payment history is the most influential factor in credit scoring, making up approximately 35% of a FICO Score and is extremely influential for VantageScores. This factor reflects your consistency in meeting payment obligations. Making at least the minimum payment on time for all your credit accounts is important for building and maintaining a positive payment history.

Conversely, missing a payment, even if it is just the minimum, can damage your credit score. Late payments begin to affect your credit report once they are 30 days or more past due. The longer a payment remains overdue, the greater the negative effect on your score.

Other Factors Affecting Your Credit Score

Beyond payment history and credit utilization, several other elements contribute to your overall credit score. The length of your credit history considers how long your credit accounts have been open and how long it has been since you used them. A longer history of responsible credit management benefits your score.

The types of credit you use, known as your credit mix, also play a role. This includes a variety of account types, such as revolving credit (like credit cards) and installment loans (like mortgages or auto loans). New credit, meaning recent applications or newly opened accounts, can temporarily impact your score. Each “hard inquiry” from a lender when you apply for new credit can slightly lower your score, though the effect is minor and short-lived.