Credit Card Minimum Payment Definition

Paying the minimum credit card payment
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When you start out using credit cards, one of the first things you should understand is the importance of the minimum payment.

Your credit card terms require you to pay at least the minimum payment by the due date each month. This payment is the lowest amount you can pay on your credit card to avoid penalties. Minimum payments are typically calculated as a percentage of your outstanding balance plus any fees that have been added to your balance. That means the higher your credit card balance, the higher your minimum payment will be.

Your credit card's minimum payment is printed on the front of your billing statement. Or, if you check your balance online, you'll see the minimum due when you log into your account.

Making Your Minimum Payment

The minimum payment must be paid by the cutoff time on the payment due date. For most credit cards, the cutoff time for your minimum payment is 5 p.m. Some credit card issuers extend the cutoff time to later in the day. Check with your credit card issuer to find the exact cutoff time for your minimum payment.

Your credit card issuer will give you a few options for making your minimum payment by mail, online, or other the phone. If you mail your payment, you can send a check or money order. If you make a payment online, you'll be able to enter your checking account and routing number to make an electronic payment. You can't use another credit card or debit card to make your minimum payment. Make sure you give yourself enough time to make your payment so your credit card issuer receives it on time.

What Happens If You Miss Your Minimum Payment

If you miss your monthly minimum payment or you pay less than the minimum, your credit card issuer can charge you a late fee. Missing the minimum payment can also forfeit any promotional interest rate you have on your balance. After you miss two minimum payments in a row, your credit card issuer may raise your interest rate to the penalty rate.

After your minimum payment is more than 30 days late, the credit card issuer will report the late payment to the credit bureaus. This late payment will go on your credit report and remain for seven years. Your credit score might also be impacted, especially in the first few months after the late payment is added.

Previously missed payments will raise the current minimum payment due. Not only will you be required to make the current and missed minimum payments, but a late fee will also be added to the amount you need to pay to get your account back in good standing. Because the minimum payment rises with each missed payment, it gets harder and harder to catch up on your payments.

Paying More Than the Minimum

You can pay more than the minimum. In fact, it's best to pay your balance in full to avoid paying interest on your credit card balance and stay out of credit card debt. When you make the minimum payment, your credit card balance only goes down by a small amount.

Paying only the minimum on your credit card is the most expensive way to pay off your credit card balance. It takes the longest and you'll pay more interest by the time you completely repay your balance. In fact, if you're making the minimum payment yet continuing to make purchases each month, your balance will grow instead of shrink. This is one of the fastest ways to get yourself into debt.

Article Sources

  1. Capital One. "Understanding the Terms of Your Credit Card." Accessed Jan. 29, 2020.

  2. Chase. "Cardmember Agreement Rates and Fees Table." Accessed Jan. 29, 2020.

  3. Discover. "Discover Card Help Center." Accessed Jan. 29, 2020.

  4. Schools First FCU. "SchoolsFirst FCU Rewards Mastercard® Credit Card Disclosure." Accessed Jan. 29, 2020.

  5. Equifax. "When Late Payments Show on Credit Reports." Accessed Jan. 29, 2020.