How Is a Credit Card Minimum Payment Calculated?

Quick Answer

A credit card minimum payment is typically calculated as a percentage of your statement balance. Some lenders charge a percentage of your balance, while others factor in interest and other fees. And in other cases, you may only be charged a flat monthly payment, such as $35.

Hands holding credit cards and using smartphone to look at minimum credit card payment.

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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's minimum payment is based on your interest rate and current balance and can fluctuate month to month based on how your balance changes.

A minimum payment is the lowest amount your credit card issuer 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. If you carry a balance, however, paying only the minimum each month could cost you in interest charges and greatly prolong the time it takes to pay off the balance.

How Is a Credit Card Minimum Payment Calculated?

The minimum payment on your credit card is typically calculated as either a flat percentage of your card 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.

In some cases, however, such as 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.

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 Only the Minimum Payment Affect My Credit?

Paying at least the minimum due each month by the due date is key to keeping your payment history intact. Payment history is the most important factor in your credit score, and even one 30-day late payment can have a negative impact on your scores.

At the same time, paying only the minimum due each month can potentially have a negative impact on your score, depending on how much revolving debt you have. Carrying a high balance could lead to a high credit utilization ratio, which calculates your total balances as a percentage of your total available credit. A credit utilization rate above 30% has the potential to drive down your credit scores. Generally speaking, the lower your credit utilization, the better.

Paying more than the minimum also ensures your balances are paid off in a timely manner. According to Experian's credit card payoff calculator, it would take five years to pay off a $2,000 balance on a credit card with 20% APR making only the minimum monthly payment of $54—and you'd pay over $1,100 in interest. That's also assuming you don't make any new purchases.

How much you can ultimately pay beyond your minimum payment depends on your individual financial situation, but you'll do the most to avoid interest charges by paying off your full balance before the end of the grace period.

The Bottom Line

Understanding what goes into calculating your minimum payment is a big piece of being a savvy borrower and managing your credit card well. Remember to aim to pay more than the minimum due to save money on interest and maintain good credit.

If you're looking to pay off your credit cards, or want to learn more about your current credit card debt, check your credit report and monitor your credit for free through Experian. That way, you'll know what's in your credit file, and you'll be alerted to changes to your score.