THD Credit Consulting

The Trap of Minimum Payments

Erik Kaplan

Erik Kaplan

Erik is the CEO and Founder of THD Credit Consulting

How you use your credit card can have a big effect on your credit score, but how you pay them could too.

Our friend Charline Sistrunk, host of  Lunch with the Finance Bunch is back and we are talking about The Trap of Minimum Payments.

Watch this video, then lets discuss how paying only the minimum on your credit cards can affect your credit score.

When it comes to your finances, seeing a small minimum amount due on your credit card statement can give you a false sense of security.  You might think to yourself, great I only have to pay this amount this month.  However, only paying the minimum on your credit cards can affect two factors that help make up your credit score-your payment and your credit utilization.

Payment History
Your payment history measures how often you pay your bills on time. When a credit card company reports to the credit bureaus monthly, it simply indicates whether you’ve paid as agreed or if you are late.  Technically, if you’re making the minimum payment on your credit card, you’re meeting your contractual obligations, and is good news for your credit score.

Credit Utilization
Simply put, credit card utilization refers to how much of your available credit you use on a monthly basis.  How much you owe makes up about 30% of your credit score, and your credit utilization ratio heavily influences that factor.

You can figure out your utilization rate by dividing your total credit card balances by your total credit card limits.  I suggest you keep your ratio below 30%.

Here are a few tips to keep your credit utilization ratio low:

  • Pay off your balance in full every month or make multiple payments allowing you to pay more of the balance off.
  • Find out when your issuer reports to the credit bureaus by calling the issuer’s customer service line. Once you know, make your payment in advance of the reporting date ensuring your payments are showing up for that month.
  • If your card has a low credit limit and you’re not concerned about accumulating debt, consider asking the issuer to increase it.  

While there are no absolutes when it comes to your credit utilization ratio, the 30% rule is a reasonable goal. Consumers who use less of their available credit are seen as less risky borrowers than those who use more of their available credit.

If you have questions about minimum payments, credit utilization or want to talk about rebuilding your credit, give me a call or email me today.

Until next month,
Erik Kaplan


THD Credit Consulting  ・ (800) 822-7120 ・


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