Paying my credit card minimum keeps hurting my score, and credit limits. What Are my options to fix?

A Reddit user is very concerned about the state of his credit. The issue is that he is paying only the minimum amount due on his credit cards. He started paying the minimums when he lost his job, and once he began making only minimum payments, the card companies all started decreasing his credit limit.  As a result, he said his credit score has dropped by over 120 points. 

Here’s why this happened, why it is a problem, and what the Redditor can do to fix the situation. 

Why is the Redditor’s credit being damaged?

First, it’s important to understand what is happening with the poster’s credit situation.

As several other people commenting on his thread pointed out, the banks are engaged in “balance chasing.” Essentially, it is a practice where banks reduce a cardholder’s credit limit as the cardholder pays down their balance. Card issuers do this because they fear that the borrower has become a default risk, and they want to limit the amount of credit that’s available to them.

Multiple Redditors said that paying the minimum balance due on a large number of cards with big balances is a common trigger that prompts banks to start lowering credit limits. It’s a red flag that the borrower is having financial trouble, and, in this case, the banks are right that the Redditor is in distress because he did lose his job, which is why he is paying the minimum.

Unfortunately, balance chasing hurts the Redditor’s credit because when his available credit is reduced down to close to the amount he owes, it affects his credit utilization ratio. That’s the second most important factor in the credit scoring formula after payment history.

Utilization ratio is calculated by dividing credit used versus credit available. If the Redditor had a $500 balance on a card with a $2,500 limit, his utilization ratio would have been 20%, but if the bank lowers his limit down to $500, then he has a 100% utilization ratio. Anything above 30% is problematic and can result in a reduced score, so with all of his cards lowering his rate and his utilization ratio increasing because of it, it’s not a surprise that his credit score dropped so dramatically.

What can the Redditor do to fix the situation?

The poster could try to call the card companies and ask for a credit line increase, but that is very unlikely to happen. He has no job right now, and they are going to ask about his income if he requests a credit line increase. They are almost assuredly not going to extend him more credit when they find out he has none. 

The other option is to try to pay more than the minimums, which is a better choice anyway because you don’t want to carry a balance on your cards. Unfortunately, this is probably not an option for obvious reasons. If the Redditor had enough income to pay more than the minimum, he probably would be doing that already. He could potentially look into a side job or part-time work to free up money to pay more until he gets a job, but this can interfere with unemployment benefits and may not be a good idea or even possible, though.

If the poster has a close family member or friend willing to list him as an authorized user on a card with a lot of available credit, that could help tremendously because then he would have a more favorable utilization ratio. Of course, he would then be legally allowed to use the card he’s an authorized user on, so they’d have to trust him — although he could be an authorized user even if they never gave him a physical card or the card numbers. The account would still show up on his credit report.

If the Redditor can’t take advantage of these options, though, then the only thing he can do is keep paying, make sure not to miss any payments, which would be truly devastating to his credit, and then wait until he gets a job and start paying off the debt as soon as possible.  If he does that, his score should improve quickly, and he can ask for credit line increases again or shop around for a great new cash back card that can help him build his credit score back up while earning him rewards in the process.