How Credit Card Minimum Payments Work

Making at least the minimum payment on your credit card balance can help you keep your credit card account in good standing and allow you to avoid late fees and penalty APRs. Read on to learn how minimum credit card payments work, how issuers may calculate these payments and how minimum payments may impact your credit.

What is a credit card minimum payment?

When you use a credit card for purchases, you’re expected to pay that money back. However, you don’t necessarily have to pay it all back at once. Your credit card minimum payment is the lowest amount you can pay toward your credit card balance by the due date without incurring a late fee or a penalty APR.

How is a credit card's minimum payment calculated?

Credit card issuers may use one or more methods of calculating the minimum payment. This can depend on the activity of a credit card account, including whether you’ve been billed interest or additional charges such as late fees, amounts past due and overlimit amounts. Your cardmember agreement provides information on how your lender calculates your monthly minimum payment.

Reviewing your credit card’s terms and conditions may help you understand how your monthly minimum payment is calculated. In the meantime, here are some common methods credit card issuers use to calculate minimum payments. 

Flat percentage or a fixed amount

Credit card issuers may determine the minimum payment as either a flat percentage of your credit card balance or, for balances under a certain threshold, a fixed amount. For example, if your balance is $700 and your minimum payment is the greater of 2% of the balance ($14) or a fixed amount of $25, your minimum payment would be $25. If there is an amount past due or an overlimit amount, it could also be added to your minimum payment. 

If your balance is lower than the fixed amount, the minimum payment may be the entire balance.

Percentage plus interest and fees or a fixed amount

Issuers may calculate your minimum payment as the greater of either a fixed amount or a flat percentage of your balance plus billed interest and fees, if there are any, or charges. If there is a late fee or an overlimit amount, it could also be added to your minimum payment.

Let’s say your credit card balance is $800 and your credit card issuer charges the greater of $30 or 1% of your balance. If you’ve incurred $12 in interest with $30 in late fees, your issuer would use the flat percentage to calculate your minimum because it’s higher than the $30 fixed amount. That means your minimum payment will be $50.

When can a credit card's minimum payment change?

Depending on how your credit card calculated the minimum payment and your current balance, paying down your balance may lead to a lower minimum payment. However, there are also reasons why your minimum payment may change. If your balance goes up, your minimum payment may also increase. If you miss a payment, you may have to pay more due to related penalties. Or if you had a low introductory APR and that introductory period ends, your APR and minimum payment may go up if you’re carrying a balance.

Where can you find your credit card's minimum payment?

To find your credit card's minimum payment, you typically can log into your credit card’s online account and look under the payment section, check your monthly billing statement, or contact customer service.

How do minimum payments impact credit score?

Paying only the minimum may not help your credit utilization, which is an important factor that can impact your credit score. That’s the percentage of your available revolving credit that you’re using. If you have high credit utilization, paying the minimum means you’ll keep your credit utilization ratio high for longer than if you paid down that debt.  In general, the lower your utilization, the better.

When it comes to credit utilization, paying the full statement balance is typically better for your credit. Plus, it may help you avoid paying unnecessary interest charges.

At the same time, however, making your minimum payment can build your credit by establishing a history of on-time payments. If you’re unable to repay more than the minimum, making the minimum credit card payment consistently can still be good for your credit score by helping you avoid late payments (and fees) and it keeps your account in good standing.

How long does it take to pay off your credit card if you only make minimum payments?

Depending on your balance, paying only the minimum can mean it will take a long time to pay off your credit card. This may take even longer if you’re making new purchases each billing period and adding to the balance.

Your statement includes a “minimum payment warning” that lets you know how long it will take to pay the full balance if you only make minimum payments, and what this will cost based on the card’s current interest rate.

What happens if you miss a credit card minimum payment?

Missing a minimum credit card payment can lead to penalties such as a late fee or penalty APR. If your credit card has a low intro APR, a missed minimum payment could also mean losing that APR. Your credit card issuer may also report late payments to the credit bureaus, which could have a negative impact on your credit score.

Taking steps like signing up for account alerts or autopay may help you avoid missing payments in the future and avoid those penalties.

Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.

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