Personal Finance

Always paying the minimum on my credit cards led to reduced limits and a score drop — how can I fix this?

Maurie Backman

Published: December 16, 2024 12:48 pm

Flywheel Publishing has partnered with CardRatings for our coverage of credit card products. Flywheel Publishing and CardRatings may receive a commission from card issuers.

Key Points from 24/7 Wall St.

• Only paying your minimum credit card balances could cause you to lose access to credit.
• That could also ding your credit score.
• Consolidating your balances can help you get ahead of your debt.
• See our top picks for the best credit cards today. ^(Sponsored)

The nice thing about using credit cards is that you get the flexibility to not pay your entire balance at once if money is tight. And let’s face it — sometimes, we all need that leeway, especially in a layoff situation or emergency.

But not paying your credit card bills in full could cost you in more ways than one as a recent Reddit user discovered. In this post, the user admitted they were flipping out because their credit card companies were decreasing their credit limits after a period of only making their minimum monthly payments. They also noted that their credit score had decreased more than 120 points since their credit limit shrunk. There’s a reason for that, though.

The danger of only making minimum payments on credit cards

Here’s a secret about credit card companies: They don’t actually want you to pay your balances in full. Carrying a balance allows your credit card issuers to charge you interest, which helps their bottom line while hurting yours.

But credit card companies also need to protect themselves. And when you go for a stretch of time only making your minimum monthly payments, it can be a red flag. So it’s not unusual for a credit card company to reduce your credit limit when you get into the habit of paying your minimums only. The problem, though, is that you risk a huge hit to your credit score in that situation, which is what happened to the Reddit user above.

The two factors that carry the most weight when measuring your credit score are your payment history and your credit utilization. Your credit history measures how timely you are with payments, while your credit utilization measures how much available revolving credit you’re using at once.

If you’re able to make your minimum monthly credit card payments on time, you won’t get dinged from a payment history standpoint. But if you carry a large balance relative to your total credit limit, you will get dinged from a credit utilization standpoint. And if your credit card issuers reduce your credit limit after observing that you’re only making your minimum payments, it can drive up your credit utilization, damaging your credit score quite a bit. Of course, the problem is that once your credit score takes a dive, it can become even harder to borrow money when you need to.

How to get back on your feet

If you’re dealing with a massive credit score drop and a large pile of credit card debt, your best bet is to try to get ahead of your balances. The Reddit user above notes that they’re unemployed, which could explain why they’ve only been able to make their minimum monthly payments. If you’re in a similar boat, you may not realistically be able to get ahead of your debt until you’re working again.

But once that happens, try consolidating your debt into a 0% introductory APR credit card – preferably one with a longer introductory period. The more months you’re able to go without accruing interest on your balance, the easier it becomes to get ahead of.

From there, though, put yourself on a tight budget so you’re able to pay down large chunks of your balance at a time. The more of that debt you pay off, the more your credit utilization should drop – and the more your credit score should start to rise.

Another option is to consolidate credit card balances into a personal loan. You won’t get a 0% introductory APR with a personal loan, but you may find that you can qualify for a lower interest rate than what your credit cards are charging you. And then you get the benefit of fixed monthly payments.

Remember, credit score drops are often only temporary. It’s frustrating to see that number decrease, but it happens. You’re not doomed to a reduced credit score forever if you work to whittle down your debt and keep upholding the smart habit of paying on time.

Flywheel Publishing has partnered with CardRatings for our coverage of credit card products. Flywheel Publishing and CardRatings may receive a commission from card issuers.