What Happens to My Credit Score If I Only Pay the Minimum?

In 2006, Congress enacted legislation that requires minimum debt payments cover interest and at least some of the principal balance -- a move to help consumers eventually pay off debt. Although minimum payments are the lowest amount you can pay and not be delinquent on your credit card debt, paying more than the minimum does not have a direct impact on your credit score.

Identification

Paying the minimum raises your credit score because the lender will report it as an on-time payment, according to Entrepreneur.com. This avoids your account going into delinquency. An overdue account would lower your score. If an account gets to more than 90 days overdue, it will drastically lower your score.

Effects

Paying the minimum balance is the most expensive way to pay off credit card debt. Making only minimum payments could mean you pay more in interest than the value of the principal over the life of the loan. Also, minimum payments boost your score at a much lower rate than higher payments. This is because the FICO credit scoring formula gives 30 percent weight to how much of your credit line you have available.

Potential

If you can only make the minimum payments on a credit card, the interest charges are too high and/or you have spent more than your income allows. You may have to take out more loans to help pay for essentials, which could lower your credit score by adding more debt to your credit history. By forcing a higher payment on yourself, you can reduce impulse buys and unnecessary spending.

Tip

Mint.com suggests only making purchases with a credit card when you know you can repay the principal in full at the end of the month. Consider making a balance transfer if you find a credit card with a zero percent teaser rate and no transfer fee. Credit card companies give up to 18 months of free interest for transferring balance.