Does my credit get hurt if I’m just making minimum payments on my credit card?
Making minimum payments themselves probably won’t hurt your credit. It shows that you’re making an effort to pay your bills. However, minimum payments usually don’t put enough money on your account to pay down the principal, just the interest accumulated through the month. This means your credit card balance will likely stay approximately the same.
Why this could be a problem in the long-term is, if your principal slowly rises or your keep using your card and the balance gradually increases, you will end up consuming more of your available balance.
Credit scores involve several factors and one of them is the ratio of money you have borrowed compared to how much you could borrow. This is called credit utilization. In other words, if you have a credit card limit of $10,000 and you spend $1,000, you have a ratio of 1:10 (or 10%). If you spend $2,000 then you have a ratio of 2:10 (or 20%). Ideally you want to keep your utilization small.
If you’re just making minimum payments while continuing to use the card then your utilization will gradually rise and your credit score will slowly drop.
Ignoring credit scores for a moment, I’d also like to point out that credit cards typically have high interest rates. They’re often in the range of 19% to 22% annually. This makes credit card debt some of the most expensive you can have. Whenever possible you should try to pay off your entire credit card bill to avoid high interest rates. If necessary, getting a loan or a line of credit at a lower interest rate and using it to pay off your credit card would be better than treading water and just making the minimum payments.
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