Does Paying the Minimum Hurt Your Credit Score?

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Paying the minimum amount you owe on your credit cards can hurt your credit score if you carry high amounts of debt. Minimum credit card payments also increase the amount you pay in interest charges, and they prolong the time it takes to pay off debt. The Federal Trade Commission suggests you develop a lifestyle that allows you to pay more than the minimum amount. Doing so saves money and improves your score because you lower your debt-to-credit ratio.

Avoid Minimum Payments

Paying the minimum amount allows additional interest charges to accrue on your debt. For example, suppose you charge $250 on a credit card with a 21 percent interest rate and your minimum payment is $20. If you make the minimum payment, it would take you 15 months to pay off the balance, including the $35 interest charge accrued. If you double those payments, you decrease the payoff time to seven months and reduce your interest charge to $18, according to the Federal Reserve Board's credit card repayment calculator.

Understand Credit Impact

Paying the minimum amount on your credit card prolongs the time it takes to pay off the debt. Carrying a large amount of debt damages your credit score. The amount of debt you carry relative to your credit limit is called your credit utilization or debt-to-credit ratio, and it accounts for 30 percent of your credit score. According to the Fair Isaac Company (FICO), using 35 percent or more of your total available credit can significantly reduce your score. Conversely, paying more than the minimum amount can help you to shed debt faster, reduce your debt-to-credit limit ratio and increase your score.

Increase Card Payments

The Federal Trade Commission recommends you spend less so you can pay more than the minimum amount on your credit cards. Reduce excess spending in daily living: Take your lunch to work or rent a DVD rather than go to the movies. Shop discount stores and carpool with co-workers to save on gas. Apply these savings toward your credit card bills to pay down your debt. Target one card at a time until you are debt-free.

Read Your Statement

Read your credit card statement to understand the cost of making only the minimum payments. The Credit CARD Act requires your creditor to list how long it will take to pay off your balance if you only make the minimum payment. This calculation assumes you pay your bill on time and do not add more charges to the card. The Federal Trade Commission recommends you charge only what you can afford and pay off your card balance each month to avoid interest charges.

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