Let’s Learn About: Minimum Credit Card Payments
The minimum payment due for your credit card bill is usually based on a certain percentage of your account balance.
Missing payments or making late payments may have a negative impact on your credit score.
Setting up yet or email alerts, or checking your credit card statement regularly, are effective ways to manage your credit card payments.
The minimum payment on your credit card statement is the smallest dollar amount you must pay in a given month. However, keep in mind, that if you only pay the minimum, you will carry a revolving balance and you will owe interest on that amount.
The credit card statement you receive each month is filled with information, and a number you’ll likely want to pay special attention to is your minimum payment. So, what is your minimum payment? Your minimum payment is the smallest amount of money that you must pay each month to keep your account in good standing.
Understanding your minimum payment
Your credit card represents a line of credit that has been extended to you. And when you make a charge, you are receiving a loan. When you opened your credit card account, you agreed to the payment terms of this loan. One of those terms is that you have to pay back the loan at the applicable annual percentage rate (APR). The smallest amount of money that you are required to pay each month is the minimum payment.
Your minimum payment could be calculated in several different ways and can vary from card to card. Consult your credit card statement and the terms of your account to understand exactly how your particular minimum payment is calculated.
The importance of making the minimum payment
Thankfully, credit card terms can be flexible, and only require you to make a payment of at least the minimum payment each month, on or before the payment due date. So long as you make at least the minimum payment on time each month, your account is considered current.
Most credit cards allow you to avoid interest charges on purchases by paying your entire statement balance in full and on time each month.
What if I miss a payment?
When you fail to pay at least the minimum amount, or miss a payment entirely, there are several negative consequences depending on the type of late payment. First, you may be liable for the payment of a late fee. In addition, many credit card issuers will impose a higher, penalty interest rate.
When you miss a payment, you will also continue to incur interest on your average daily balance, which will be higher than it would have been if you had made the minimum payment. Additionally, your late payment may be reported to the consumer credit bureaus, which could hurt your credit history and lower your credit score.
Fortunately, there are several ways that you can avoid making late payments. You can configure email and text alerts to notify you when your payment is due. You also can create automatic payments to ensure that you always pay at least the minimum amount, and that your payment is received on time.
What other information will I see on my statement?
The minimum payment amount is different from other amounts that will appear on your paper or digital statements. For instance, your statement will include a “statement balance,” which is the total amount of outstanding charges and fees on your account at the time your statement cycle closed. It will not represent any charges or fees on your account, or payments made, since the statement period ended.
Your credit card statement will also include a required minimum payments disclosure if you carry a balance each month. This table will show you how long it will take you to pay off your entire statement balance if you make only the minimum payment due and no additional transactions are made on the card during this time.
By understanding what the minimum payment is, and how it works, you can make sure to manage your credit card account as responsibly as possible.
Understand how credit card minimum payments work
Credit cards come with lots of terms and conditions, but there's one that's especially important to know: minimum payments. Making minimum payments can help you avoid penalties or fees when you’re unable to pay your balance in full. It can help you keep your account in good standing if times get tough.
If you’re a Capital One customer struggling with minimum payments because of COVID-19, please reach out directly to discuss available resources. And to learn more about what minimum payments are, how they’re calculated and what happens if you miss a minimum payment, read on.
What Is a Credit Card Minimum Payment?
A credit card minimum payment is the smallest amount you must pay each monthly billing cycle. Paying the minimum on time helps you avoid penalties and fees.
How Is My Minimum Payment Calculated?
Credit card minimum payments are usually calculated based on your monthly balance. The minimum payment could be a percentage of your balance, plus new interest and late fees. Or it could be a flat percentage of your entire balance. And in some cases, the minimum payment could include past-due amounts.
How a minimum payment is calculated can vary from issuer to issuer. You can find out how your minimum payment is calculated by checking your account’s terms and conditions.
Can Monthly Minimums Change From Month to Month?
Yes. In fact, it's actually common for the minimum amount you owe to change from month to month. Here are three scenarios that would affect your minimum payment.
Missing a Minimum Payment or Paying Less Than the Minimum Payment
If you pay less than the minimum amount required or miss a payment entirely, even by a day, you may be charged a late fee. The late fee will be added to what you owe on your next credit card bill.
But according to the Consumer Financial Protection Bureau (CFPB), “You cannot be charged a late fee if you paid at least the minimum amount due and your payment was received by 5 p.m. (in the time zone where payments are sent) on the date it was due.”
Here’s another way missed payments might impact future minimum payments: Some credit card issuers might increase the annual percentage rate (APR) on your card if you miss a payment. Or the issuer might calculate the future minimum payment amount using a higher percentage of your balance.
Keep in mind that missed payments also can impact your credit score—especially if you’re late by more than 30 days.
Paying Only the Minimum Payment
Paying only the minimum payment required may help keep your account in good standing. And you typically won’t face any late fees or penalties.
If you pay the minimum amount and make fewer purchases with your card, you might be able to pay down the balance on the card. And a lower balance could mean less interest charged, which can lead to lower minimum payments.
But if you don’t pay your account balance in full every month, you could be charged interest.
Paying More Than the Minimum Payment
According to the CFPB, you should always pay as much of your full credit card balance as you can.
Why? Paying more than the minimum payment can help you cover the interest charged while also decreasing the total balance on your card. This pays off debt more quickly than making only the minimum payments.
Paying more than the minimum amount also helps limit the interest you’ll owe over time. And the less interest charged, the lower your minimum payments could be.
Can I Make Multiple Credit Card Payments in One Month?
One way to pay more than the minimum payment is to make multiple credit card payments in one month. After making the minimum payment on time, any additional payments will help decrease your balance even faster. And that can also reduce the interest charged over time.
Does Making Minimum Payments Affect My Credit Report and Score?
When it comes to credit scores, each of the major credit bureaus—Equifax®, Experian® and Transunion®—has its own scoring model. But the more on-time payments you make, the better that’s likely to be for your credit score—no matter the scoring model.
Something else to consider: If you’re making only minimum payments, it may take longer to lower your balance and credit utilization ratio—how much of your available credit you’re using. And your credit utilization ratio is an important factor in determining your credit score. The lower your credit utilization ratio, the better.
How Can I Lower My Credit Card Minimum Payment?
There are a few ways to help lower your credit card minimum payment. You might try making fewer purchases with your card until your balance decreases. A lower balance could mean less interest charged, which can lead to lower minimum payments.
You could also try to make payments that are more than the minimum amount. Paying more than the minimum amount can help reduce your balance sooner and lead to lower payments over time.
These approaches can also lower your credit utilization ratio, which may help improve your credit score.
How Long Will It Take to Pay Off My Credit Card If I Make Only the Minimum Payment?
Making minimum payments alone can be the slowest way to pay off credit card debt—especially if you’re making new charges on the card each month. Exactly how long it takes to pay off a credit card with minimum payments depends on your balance, minimum payment amounts and the card’s interest rate.
Check your credit card statement to see how long it may take. Since the passage of the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, credit card issuers have been explaining the cost of making only minimum payments. Depending on the balance, the credit card statements will provide repayment information, like:
- How many months it would take to pay your balance if you make only minimum payments.
- The cost of making only minimum payments, based on your current interest rate.
- How much you would need to pay each month in order to pay off your balance in 36 months.
- The total interest you would pay if you paid off your balance in 36 months.
How Do I Set Up Automatic Minimum Payments?
Setting up automatic minimum payments can help ensure you don’t miss a payment’s due date. Keep in mind, the process for setting up minimum payments might vary depending on your bank and card issuer.
If you’re a Capital One cardholder, you can set up AutoPay to make automatic monthly credit card payments. And if you’re a Capital One bank customer, you can also set up Bill Pay from your bank account.
Handling Credit Card Minimum Payments During COVID-19
A global health crisis is a stressful, uncertain time for everyone. If your finances have been affected by COVID-19, it might be difficult to cover expenses like your full monthly credit card balance. But making the minimum payment can help you keep your account in good standing.
And if you’re struggling to make your minimum payments, you can contact your credit card issuer to find out what resources might be available to you.
Capital One customers experiencing financial hardship due to COVID-19 should reach out directly for information about available resources. If you need assistance with other payments, like your mortgage, rent, utilities or other bills, federal resources might also be available.