How to calculate your minimum payment on a credit card

Besides setting a definite minimum payment, there are two prevailing techniques applied by credit card issuers to calculate monthly minimum payments.

• Method 1: Flat percentage

In this case, the credit card issuer computes the minimum payment as a percentage of your total statement balance usually around one to three percent. For example, if the flat percentage is 1 percent, and your statement balance is 1,000 dollars, the minimum payment is 10 dollars (1,000 * 0.01 = 10).

• Method 2: Percentage plus interest

Some credit card issuers set your minimum payment by computing the percentage of your statement balance and adding the interest and fees charged during the statement period. Considering the previous example with a 20 dollar monthly interest charge and a 30 dollar late fee, you can compute the minimum payment in the following way:

Minimum payment = Statement balance * Minimum percentage + Interest charges + Fees

Minimum payment = 1,000 * 0.01 + 20 + 30

Minimum payment = 60 dollars

Note that the percentage method applies exclusively when the resulting amount is larger than the defined minimum payment. For example, if you have a small statement balance, say 100 dollars, the minimum payment with a flat percentage method (i.e., 1 percent) would result in merely 1 dollar. If the defined minimum payment is 20 dollars, the required minimum would be this amount, and the percentage method would be set aside.

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.

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