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Credit Card Basics

How Is Your Credit Card Minimum Payment Calculated?

If you've ever carried a balance on a credit card, you've probably seen the minimum payment option offered by your card issuer. Your credit card minimum payment is calculated based on your interest rate and your current balance and can fluctuate month to month based on how your balance changes.

A minimum payment is essentially the lowest amount the bank will accept as payment toward your balance each month. Paying the minimum allows you to keep your card in good standing, and also buys you time until you can pay more toward your overall balance. But if you carry a balance, paying only the minimum each month could cost you in interest charges and even hurt your credit score.

What Factors Affect the Minimum Payment Calculation?

Minimum payment amounts are almost always calculated based on your interest rate and your monthly balance. In some situations—like when your account balance is under a certain amount—you may be charged a fixed amount, such as $25 or $35. The one exception to this is if your total balance is smaller than the fixed minimum payment amount, in which case you will be asked to pay your full balance.

For cardholders whose balances are above a certain threshold, the minimum payment may be calculated using several methods: either a flat percentage of your entire balance or a percentage plus the cost of interest and fees. Depending on the card issuer and your agreement, either of these methods might be used to calculate your minimum payment.

If your card issuer charges a flat percentage, your minimum payment could be anywhere from 2% to 4% of your total balance. In this case, the interest and any fees will be deducted from the total percentage calculated. If they use the alternative method, you'll pay a lower flat percentage—usually around 1%—but you'll also pay the applicable interest and fees for that period.

How Do I Know How Much My Minimum Payment Is?

The easiest ways to find your minimum payment each month are to look at your mailed billing statement or log in to your credit card account online and go to the payment tab or most recent billing statement. If necessary, you can also contact your bank over the phone to ask what your minimum payment is for the month.

As part of the Credit CARD Act of 2009, credit card issuers are legally required to provide a "minimum payment warning" on each billing statement. This warning tells you the total time it will take to pay off your credit card balance and how much interest you'll pay by only making the minimum payments each month.

Check your statement carefully each month to find out your current minimum payment. This amount can change month to month based on your balance and can also include things like late payment fees and past missed payments.

How Does Making the Minimum Payment Affect My Credit?

Your credit scores will not be directly affected by paying the minimum amount on your credit card each month, and making on-time payment each month can actually help your credit health overall. Payment history is the most important aspect of your credit scores, and even one late or missed payment can have a negative impact on your scores—so if you're at least paying the minimum on your bill, your payment history shouldn't take a dip.

Paying just the minimum, however, may impact your credit utilization ratio, depending on how much revolving debt you have. Credit utilization is calculated by dividing your total balances by your total available credit. Experts recommend maintaining a utilization rate under 30% to avoid negatively impacting your credit scores. By paying the minimum, your total revolving debt will go down at a slow pace and won't do much to reduce your credit utilization.

Paying only the minimum each month could cost you quite a bit when interest is factored in and compounded over time, so try to pay more than the minimum when you can. If you can only afford to pay the minimum amount, however, do it so you avoid any late or missed payments.

If you're looking to pay off your credit cards, or want to learn more about your current credit card debt, consider getting a free copy of your Experian credit report and scores from Experian so you know what's in your credit file.

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