How Minimum Payment Is Calculated by Credit Card Issuers
If your finances are strained, you may be unable to pay more than the minimum payment on your credit card balance. But if you regularly pay the minimum, you might notice that the minimum payment fluctuates from one month to the next. If this is the case, your card issuer might calculate your minimum payment based on your balance.
However, different card issuers calculate minimum payments differently — and the same card issuer might calculate minimum payments differently depending on your balance. To understand how credit card issuers calculate the minimum payment, you need to understand how the process works.
How Do Minimum Monthly Payments Work?
The minimum credit card payment is the lowest amount you can pay toward your credit card bill on or before the payment due date to prevent late fees and penalty APRs. While making the minimum payment will keep your account in good standing, you may still accrue interest.
For example, if your balance is $300 and you make the minimum payment of $25, the card issuer will charge you interest on the remaining $275 balance.
How the Minimum Payment Is Calculated
As mentioned, each card issuer calculates the minimum payment differently. In addition, they may use a different calculation depending on your balance. Generally, your minimum payment will be calculated using one of the following.
Percentage of Your Balance
On higher balances, credit card issues often charge a certain percentage of the balance in interest — often 2%, but it varies by issuer.
Keep in mind that if your minimum balance is calculated as a percentage, there are some different methods the card issuer might use. For example, the card issuer might charge a flat percentage. Alternatively, it might charge a percentage plus interest and fees.
- Flat percentage: If your card issuer charges minimum payments as a flat percentage, it will be a simple calculation.
- For example, if you have a $5,000 balance and it charges 2% as the minimum, your minimum payment would be $100.
- Percentage plus fees and interest: You’ll have to pay the flat percentage plus any added interest and late fees. The flat percentage is often lower with this method.
- For that same $5,000 balance, a 1% flat fee would be $50. If your accrued interest is $75 and you have $26 in late fees, your minimum payment would be $151.
Flat Dollar Amount
If your outstanding balance is lower, the card issuer might require you to pay a flat amount. For instance, you might be required to pay at least $20.
These dollar amounts also vary by card issuer, but each card issuer generally uses the same amount — meaning that if your balance falls into the range requiring a flat payment, it will always be the same flat payment, regardless of where in the range you fall for a given month.
If you owe less than the dollar amount the card issuer charges as a minimum payment, you will owe the entire amount. For instance, if the minimum payment is $20 and you only owe $15, then $15 will be your minimum.
Where To Find Your Minimum Payment
There are a few places to find your minimum payment on your credit card:
- In the documentation you receive when the card is mailed to you
- Online, when you log into your account
- On your credit card statement
If you have trouble finding your minimum payment with these methods, you can also call the number on the back of the card. The card issuer can share that information with you over the phone.
Minimum Payment Warning
It’s also worth noting that credit card issuers must provide what’s known as a “minimum payment warning” as a result of the CARD Act of 2009. This shows the monthly payment required to repay your balance within 36 months, or three years.
It must also disclose how long it will take you to pay off the full balance if you make only the required minimum payment.
Can Minimum Payment Affect My Credit Score?
If you only make the minimum payment and leave a balance on your card from month to month, this hurts your credit score by keeping your credit utilization higher.
Making the minimum payment also affects your payment history, which is the most important credit score factor. If you miss making your minimum payment, it will hurt your credit score. However, your credit score may improve if you turn things around and consistently make at least the minimum payment for several months or years.
It’s always best to pay at least the minimum to keep your credit score from taking a hit — even better if you can pay more than the minimum. Your credit score will be best off if you can pay off your full balance every month.
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- Consumer Financial Protection Bureau. "Appendix M1 to Part 1026 — Repayment Disclosures."
- Consumer Action. "Fact Sheet."
- Federal Trade Commission. 2022. "Using Credit Cards and Disputing Charges."