Making at least the minimum payment on your credit card balance can help you keep your credit card account in good standing and allow you to avoid late fees and penalty APRs. Read on to learn how minimum credit card payments work and different ways issuers calculate these payments.
What is a credit card minimum payment?
A minimum payment is the lowest amount you can pay toward your credit card balance by the due date while avoiding late fees, penalty APRs and possible credit damage.
Paying your entire statement balance by the due date each month can help you avoid interest and keep your credit utilization (total amount of your available credit you’re currently using) low but making at least the minimum payments on time can still help maintain a positive repayment history, which can be a significant factor in building credit.
How is a credit card's minimum payment calculated?
Different cards may come with different methods of calculating the minimum payment. This can depend on the activity on a credit card account, including whether you’ve been billed interest or additional charges such as late fees, amounts past due and overlimit amounts. The terms and conditions of your credit card provide information on how your lender calculates your monthly minimum payment.
Review these terms and conditions to understand how your monthly minimum payment is calculated, but below are some common methods credit card issuers use to calculate minimum payments.
Flat percentage or fixed amount
Credit card issuers may determine the minimum payment as either a flat percentage of your credit card balance or a fixed amount – whichever is greater. For example, if your balance is $700 and your minimum payment is either 2% of the balance or a fixed amount of $25, whichever is greater, 2% of $700 is $14, so your minimum payment will be the fixed amount of $25. If there is an amount past due or an overlimit amount, it could also be added to your minimum payment.
If your balance is lower than the fixed amount, the minimum payment will be the entire balance.
Percentage plus interest and fees or a fixed amount
Issuers may calculate your minimum payment as the greater of either a fixed amount or a flat percentage of your balance combined with billed interest or a minimum interest charge and fees, if there are any. If there is an amount past due or an overlimit amount, it could also be added to your minimum payment.
For example, suppose your credit card issuer may apply a fixed amount of $30 as the minimum payment on your card account. If your card balance is $800, the flat percentage set by the issuer is 1% and you have incurred $12 in interest with $30 in late fees, your minimum payment will be $50 since it’s greater than the alternative fixed amount of $30.
Again, if your balance is lower than the fixed amount, your minimum payment will be the full balance.
Where can you find your credit card's minimum payment?
To find your credit card's minimum payment, you typically can log into your credit card’s online account and look under the payment section or check the billing statement. Alternatively, you can call or email your card issuer and inquire about your minimum payment.
How long does it take to pay off your credit card if you only make minimum payments?
Depending on your balance, paying only the minimum can mean it will take a long time to pay off your card. This can take even longer if you’re making new purchases each billing period and adding to the balance.
Your statement may include a “minimum payment warning” that lets you know how long it will take to pay the full balance if you only make minimum payments, and what this will cost based on the card’s current interest rate.
Disclosure: This article is for general educational purposes. It is not intended to provide financial advice. It also is not intended to completely describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products.
