Will making minimum payments damage my credit score?

Question for the CreditCards.com expert

Dear Let's Talk Credit,
Would a credit score go up or down if a person regularly charges a lot of money to several credit cards and only pays the minimum each month? -- Mundo

Answer for the CreditCards.com expert

Dear Mundo,
About 30 percent of your FICO credit score is based on how much you owe on your accounts. The scenario you describe, with credit card balances increasing each month, would likely negatively impact your credit score.

Such a situation can be interpreted by lending institutions as a higher risk of late or missed payments if your balance is close to the credit limit on the account. A good rule of thumb to assure your credit score remains high is to keep your credit card balances as low as possible when you need to carry a balance.

Another factor used to calculate your credit score is other accounts included in your credit report. The total amount owed on all accounts is considered when calculating this category of the FICO credit score. A large number of accounts with amounts owed may indicate a higher risk. For installment accounts (such as a car loan), the more payments that have been made to pay down the initial loan balance, the more positive impact the account will have on a credit score.

VantageScore -- a competitor to the FICO score -- considers the percentage of credit limit used as highly influential in determining your credit score, and the total amount owed as moderately influential in determining its credit scores. VantageScore suggests keeping balances on revolving accounts below 30 percent of the credit limits.

If you're charging a lot of money to credit cards and only paying the minimum monthly payment, it sounds like you may be using credit to extend income. Unless you have a plan to pay off the balances, using credit in this manner can be a recipe for disaster. I would recommend that you stop charging more than you can pay off in 90 days or less. The drop in credit score, due to the increase in credit card balances, is the least of the problems this behavior could create.

Should your income situation change due to job loss, divorce or illness, you might not be able to make payments on the credit card accounts. At that point, your credit score would drop dramatically, as payment history is the No. 1 consideration for both FICO and VantageScore credit scores.

My recommendation is to save money for items that you cannot afford to purchase with cash and start immediately to do what is necessary to decrease expenses, especially if you are charging things such as groceries and gasoline each month.

Let's keep talking!

See related: Survey: Card issuers bump up minimum payments, How minimum are applied to small balances, FICO's 5 factors: The components of FICO credit score

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Updated: 03-22-2019