Credit Card Minimum Payment Calculation
Your credit card minimum payment is the least amount you can pay toward your credit card balance without being penalized with a late fee and possible interest rate increase. If you pay attention to your billing statement each month, you've probably noticed that your minimum payment can change from one month to the next. Sometimes it's lower. Sometimes it's higher.
Since your minimum payment can vary each month, it can be difficult to budget for your monthly credit card payment, unless you understand how your minimum payment is calculated. Once you know how your credit card issuer calculates your minimum payment, you can estimate your own minimum payment to predict how much you'll need to pay on your credit card each month.
Method 1: Percent of the Balance
Some credit card issuers calculate the minimum payment as a percent of the balance, typically between 2% and 5%. They use the balance at the end of your billing cycle to calculate the minimum payment due.
For example, your minimum payment is 2% of your balance and you have a $1,000 balance. Your minimum payment is calculated as: 1000 X .02 = $20.
Method 2: Percent of the Balance + Finance Charge
Your minimum payment may be calculated by taking a percent of the balance at the end of the billing cycle and adding the monthly finance charge.
For example, your minimum payment is 1% of your balance. Your credit card balance is $1,000. Your credit card APR is 12% and your finance charge for the month is $10. Assuming you owe no fees, your minimum payment would be $10 + $10 = $20.
Additions to Your Minimum Payment
Penalty fees and past due payments may be added to the regular minimum payment increasing the amount of your minimum payment for that month. This would increase your minimum payment significantly.
Your credit card issuer may also add any amount that exceeds your credit limit to your minimum payment. For example, if your balance is $1,050 and your credit limit is $1,000, your minimum payment may be 2% of the balance = $21 + $50 = $71.
Once you catch up, pay the past due amount, and bring your balance below the credit limit, your minimum payments should decrease.
How Is Your Minimum Payment Calculated?
You can find out which method your credit card issuer uses by reading your credit card agreement. Look for a section titled "How your minimum payment is calculated" or "Making payments." If you're reading an electronic version of your credit card agreement, you can use the Find function (Ctrl+F or Cmd+F) to locate the words "minimum payment." A customer service representative can also help you determine how your minimum payment is calculated.
Reasons Your Minimum Payment May Increase
There are a few reasons your minimum payment could increase from one month to the next:
- You were late on a previous payment.
- Your balance has increased.
- You're over your credit limit.
- Your interest rate has increased.
- The credit card issuer changed the percentage used in the calculation, either as a company principle or because you pose a bigger credit risk.
Your Full Balance May Be Your Minimum Payment
In certain instances, your credit card issuer may require you to pay your balance in full.
- If your balance is below a certain amount, like $25, for example, your minimum payment may be the full balance.
- If your account is charged off, you'll no longer have the luxury of making monthly payments and your credit card issuer will demand the full balance.
- If you have a charge card, your minimum payment is the full balance on the credit card. By nature, charge cards don't allow you to carry a credit card balance from month to month, so you're not allowed to pay just a portion of the balance each month.
Capital One. "Platinum Credit Card Rate and Fee Information." Accessed Feb. 12, 2020.
Chase. "Cardmember Agreement Rates and Fees Table." Accessed Feb. 12, 2020.
Capital One "Credit Card Minimum Payments Explained." Accessed Feb. 12, 2020.
Consumer Financial Protection Bureau (CFPB). "Why Did My Credit Card Issuer Increase My Late Payment Fee?" Accessed Feb. 12, 2020.
Equifax. "What Is a Charge-Off?" Accessed Feb. 12, 2020.
American Express. "Understanding the Differences Between Charge and Credit Cards." Accessed Feb. 12, 2020.