Here’s why making the minimum credit card payment isn’t enough to save your credit score.

Having a good credit score can do a lot for your finances. Not only will it increase your chances of getting approved for a personal loan, car loan, or mortgage, but it may also lower your interest rate. result? Continuous savings.

You’ve probably heard that if you want to improve your credit score or keep an already strong score in good shape, you need to pay off your debt on time. And that’s true. Your payment history carries more weight than any other factor when calculating your credit score. Worth 35% of your FICO® score.

But if you only make the minimum payment on your credit cards each month, you could end up taking a hit on your credit, even if you make all your payments on time. Here’s why:

When your credit utilization ratio becomes too high

Although your payment history weighs the most when calculating your credit score, your credit utilization ratio is a close second. This number accounts for 30% of your credit score and measures how much of your available revolving credit you are using at any one time.

If you have $10,000 credit limits on all your cards and $3,000 in debt, your utilization is 30%. This is generally considered the highest level of favorable ratios. This means that if your utilization exceeds that point, your credit score will increase. You may suffer. However, if you have a $10,000 credit card balance and $1,000 in debt, even a ratio as low as 10% can boost your credit score.

So if you only make the minimum credit card payment, you’re in trouble. If you stick with that system, there’s a chance your credit card balance will increase between additional charges and accrued interest. This can hurt your credit score by pushing your credit utilization ratio into unfavorable territory. On the other hand, reducing your total balance can help improve your credit score.

Of course, from a non-credit score perspective, it’s very beneficial to pay off your credit cards and stick to the minimum payments. Because doing so can help you avoid falling into a vicious cycle of debt. The longer you hold your balance and the higher the amount, the more interest it accrues and the more you’ll have to pay back over time.

Setting up for larger credit card payments

You may be in the habit of only paying the minimum monthly payment on your credit card. Because that’s all you can afford. However, making a few changes can put you in a better position to repay your debt.

First, learn more about your spending. Review your spending over the past few months and see if there are any expenses you can scale back or cut without affecting your happiness.

If there’s a streaming service you rarely watch these days and pay $20 a month for, just leave it alone. That’s $20 to cover any outstanding debt. And if you’re currently spending $200 a month on takeout, cutting that down to $100 could help you get the balance in front of you, while also giving you a break from cooking.

Another option is to look into the gig economy for additional income. Your schedule may be busy, so working on a side hustle may not be that helpful. But you can make great progress by suppressing and paying off your debt for just a few months. Then, once debt is a thing of the past, you can quit that side hustle.

Making minimal credit card payments on time can go some way to improving your credit score. This is because timely payment is of great importance. However, if your balance gets too large, you run the risk of damaging your credit score. So your goal is not only to pay the minimum amount on time, but also to pay more than that minimum amount to reduce your debt as quickly as possible.

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