Credit Advice

Finance charges and minimum credit card payments

Have a question?

Do you have a question about consumer credit? You may find an immediate answer by using the search engine. If you can't find what you're looking for, please fill out the form, being as specific as possible.

Please note: The Ask Experian team cannot respond to each question individually. However, if your question is of interest to a wide audience of consumers, the Experian team will include it in a future column.

Our policies
The information contained in this column if for educational purposes only and is not legal advice. You should consult your own attorney or seek specific advice from a legal professional regarding your particular situation.

Please understand that Experian policies change over time. Column responses reflect Experian policy at the time of writing. While maintained for your information, archived responses may not reflect current Experian policy.

Credit Advice

Finance charges and minimum credit card payments

Dear Experian,

I have a rather simple question. My wife and I disagree on whether a finance charge is already included in the minimum payment required. She says that we should pay both the minimum amount and the finance charge on time to maintain a good credit score. I say that you only need to pay the minimum amount on time to maintain a good credit score. Paying the finance charge is like paying more towards your balance that will shorten the life of your debt but it will not affect the credit score. Who do you think is correct?

- GMN

Dear GMN,

I don’t want to cause any marital strife, so I say listen to your wife. She’s giving you good advice, although you are technically correct.

A finance charge is the cost of credit including interest, cash transaction fees, late fees, and any additional charges that may be included under the terms of your contract. It is my understanding that lenders typically calculate a percentage of the amount you owe for purchases and add the finance charges to establish the minimum payment for that month.

You are correct that paying any amount more than the minimum due will reduce your debts faster. I hope you both will agree that paying only the minimum due will only reduce your debt minimally because a large part of it is going toward the finance charges and not toward the debt.

It can take many years to pay off even a moderate balance if you only make the minimum payment due. That’s where most people get caught.

If you pay the minimum due, you can eventually pay off your debt, but only if you don’t make any more charges. Your balance will continue to increase if you make charges and only pay the minimum due because you are continuing to pay only a percentage of the debt.

How does that affect your credit scores? A higher balance as compared to your credit limit is a sign of credit risk, so it will hurt your credit scores.

So, my advice is to take your wife’s counsel and pay more than the minimum due, even if you aren’t actually paying finance charges with the additional funds. It will get rid of your debt faster and help your credit scores in the long run.

Thanks for asking.

- The "Ask Experian" team

  • © 2014 Experian Information Solutions, Inc. All rights reserved.