Understanding Minimum Payment and Its Impact on Your Credit Score

Credit cards offer convenience, rewards, and financial flexibility — but they also come with responsibility. One common area where many cardholders get confused is the minimum payment. While paying the minimum might seem like a safe option, it can actually cost you more in the long run and affect your credit score if not handled wisely.

Let’s understand what minimum payment really means, how it works, and how it impacts your credit health.

What Is a Minimum Payment?

The minimum payment is the smallest amount you must pay before the credit card due date to keep your account active and avoid late fees.

It’s usually around 5% of your total outstanding balance, or a fixed amount (like ₹200–₹500), whichever is higher.

Example:
If your total bill is ₹20,000, your minimum payment might be ₹1,000 (5%). Paying this will prevent late fees, but the remaining ₹19,000 will still attract interest until it’s cleared.

How the Minimum Payment Works

When you pay only the minimum amount due:

• You avoid late payment penalties, but
• You still owe the rest of your balance, which will attract interest charges (usually 30–42% per year).

This means your debt continues to grow, and if you keep paying only the minimum every month, it can take years to clear your balance — while you pay a lot in interest.

Why People Choose to Pay Only the Minimum

Many cardholders prefer paying just the minimum due because it seems easier and less stressful. Common reasons include:

• Temporary cash shortage
• Unaware of high interest rates
• Misunderstanding how minimum payment works

However, this habit can lead to a debt trap if continued for long periods.

The Real Impact on Your Credit Score

1. Paying the Minimum Protects Your Score — Temporarily

Paying at least the minimum amount prevents your payment from being reported as “missed” to credit bureaus. This means your score won’t drop immediately.

However, that’s only a short-term benefit.

2. Carrying a Balance Increases Credit Utilization

When you keep unpaid balances, your credit utilization ratio (the percentage of credit you use) increases.
High utilization — anything above 30% — can lower your credit score over time.

3. Accruing Interest Affects Future Creditworthiness

When your balance keeps growing due to unpaid amounts, lenders see you as a high-risk borrower, which can make it harder to get new loans or cards at good interest rates.

In short, paying only the minimum keeps you safe for a month, but it hurts your financial health in the long run.

Example: The Cost of Paying Only the Minimum

Let’s say your outstanding balance is ₹30,000, and you pay only ₹1,500 every month.

• Interest charged at 3.5% per month (≈42% annually)
• It could take more than 3 years to clear the debt
• You’ll end up paying ₹15,000–₹18,000 extra just in interest

So, while it looks like you’re managing your payments, you’re actually paying much more over time.

Best Practices to Manage Your Credit Card Payments

1. Always Pay the Full Amount Due
   Avoid paying just the minimum unless it’s a genuine emergency. Clearing your full bill helps you avoid interest and keeps your score healthy.
2. Set Payment Reminders or Auto-Pay
   Link your card to your bank account for automatic full payments before the due date.
3. Keep Your Credit Utilization Below 30%
   Try not to spend more than 30% of your credit limit to maintain a strong credit profile.
4. Track Your Spending Regularly
   Use your bank’s app or monthly statements to monitor expenses and stay within budget.
5. Avoid Multiple EMIs on the Same Card
   Too many EMIs reduce your available credit and can increase your utilization ratio.

When Paying the Minimum Makes Sense

Paying only the minimum can be acceptable in certain short-term situations:

• Unexpected expenses or emergencies
• Temporary cash flow issues
• To avoid a late payment penalty while you arrange funds

However, it should never become a regular habit. Try to clear the remaining balance as soon as possible.

Final Thoughts

Paying only the minimum due on your credit card might seem harmless, but it’s a costly mistake in the long run.
It can lead to high interest payments, long-term debt, and a lower credit score.

Always aim to pay the full amount due, manage your spending wisely, and use your credit card as a tool for convenience — not for borrowing. Responsible use will help you maintain a strong credit profile and financial peace of mind.