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When it comes to your credit card minimum payment, it refers to the least amount you can pay toward the balance of your credit card without being penalized with a late fee or interest rate increase.
If you’re the type of person that pays attention to your monthly billing statements, you’ve likely noticed that your minimum payment amount due changes month to month.
Since your minimum payment can change every single month, it can feel impossible to budget for your monthly payment as the target is always changing.
However, after today, you’ll clearly understand how your minimum payment is calculated. With this knowledge in hand, you’ll be able to closely estimate what that minimum credit card payment is going to be each month.
Now, there’s a few different ways to calculate what your minimum credit card payment is going to be.
(1) Percent Of Your Balance
Some credit card issuers will calculate your minimum credit card payment as a percent of the total balance. This rate is typically 2-5% of the balance.
The issuer will use your balance at the end of your regular billing cycle to calculate the required minimum payment.
For example, if your minimum payment is 3% of your balance and you have a $1K balance, your minimum payment would be $30.
Here’s how that would be calculated: 1000 X .03 = $30
(2) Percent Of Your Balance + Finance Charge
Your minimum payment may be calculated by taking a percent of the balance at the end of the billing cycle and adding the monthly finance charge together.
For example, let’s say your minimum payment due is 1% of your balance. Your credit card balance is $1,000.
Your credit card APR is 15% and your finance charge for the month is $12. As long as you don’t owe any fees, in this scenario, your minimum payment would look like this: $10 + $12 = $22.
(3) Additions to Your Minimum Payment
There’s a few other things you need to be aware of that can add to the balance of your minimum credit card payment. Two of the most common would be penalty fees and past due payments.
Both of these could be added to your regular minimum payment, which would increase the amount of your minimum payment for that specific month. In this scenario, it can add a significant amount to your minimum payment due.
Another scenario that can add to your minimum card payment is exceeding your credit card limit.
For example, if your balance is $1,070 and your credit limit is $1,000, your minimum payment may be 3% of the balance, here’s how it looks: $31 + $70 = $101.
Now, once you’re able to catch up, pay the past due amount you owe, and bring your balance back below your credit limit, you should see your minimum card payments fall.
(4) Full Balance Minimum Payment
In some scenarios, your credit card issuer may require you to pay your balance in full. While this may be less common than other methods, it could very well be the case for you.
For example, if your balance is lower than $20, the credit card issuer may require you to pay the whole balance in full. Some credit card companies have this type of policy, others may not require it.
Another thing you want to be aware of is credit cards that don’t allow you to carry a balance. Some credit cards won’t allow you to carry a balance at the end of your statement date.
In such a scenario, you’re required to always pay the balance in full each month.
Most credit cards are not like this, but some are, so make sure you’re paying attention to the guidelines before you apply for any credit card.
How Is Your Minimum Payment Calculated?
So, what method does your credit card issuer use to calculate the minimum credit card payment for your card? Good news, it’s not that difficult to find.
You can find which method your credit card issuer is using by looking at your credit card agreement.
It’s possible this specific section is labeled as "How Your Minimum Payment Is Calculated" or "Making Payments."
If you're reading an electronic version of your credit card agreement, you can use the Find function (Ctrl+F or Cmd+F) and search for "minimum payment." If you have trouble finding it, you can always pick up the phone and reach out to customer service.
The representative will be able to help you determine how your minimum payment is calculated.
Can My Minimum Payments Increase?
Unfortunately, the answer is yes. In fact, there’s a number of different reasons that can cause your minimum payments to increase.
We’re already touched on a few of these above, but here’s the list.
- Late on a previous payment
- Interest rate has changed
- Over your credit limit
- Balance has increased
Most card issuers will notify you of changes prior to them being implemented, others may not.
If you notice a change in your minimum credit card payment that looks unusual, be sure to contact them for answers.
Can Paying Minimum Payments Hurt My Credit?
Well, the credit card companies love minimum payments because this is how they make money from you using the credit card.
As it pertains to your credit scores, it may hurt or help your credit score. It all depends on the specific scenario.
For example, if you just charged $500 and you only pay your minimum credit card payment, you’re going to see over $400 hit your credit report.
That may lower your credit score. On the other hand, if you don’t charge anything and you pay a minimum payment, you may see your credit scores go up a little.
The only time it hurts your credit is if you make a lot of charges through the month and only pay a minimum payment. However, in some cases, it may not affect your credit score at all.