How Minimum Payments Impact Your Credit and Finances

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Understanding Credit Card Minimum Payments

At O1ne Mortgage, we prioritize consumer credit and finance education. This post aims to provide an objective view to help you make the best decisions regarding your credit card minimum payments. For more information, see our Editorial Policy.

How Is a Credit Card Minimum Payment Calculated?

Your credit card’s minimum payment is based on your interest rate and current balance, and it can fluctuate month to month. Typically, the minimum payment is calculated as either a flat percentage of your card balance or a percentage plus the cost of interest and fees. Depending on your card issuer, either of these methods might be used.

If your card issuer charges a flat percentage, your minimum payment could be anywhere from 2% to 4% of your total balance. Alternatively, you might pay a lower flat percentage—usually around 1%—plus the applicable interest and fees for that period. In some cases, such as when your account balance is under a certain amount, you may be charged a fixed amount, such as $25 or $35.

How Do I Know How Much My Minimum Payment Is?

The easiest ways to find your minimum payment each month are to look at your mailed billing statement or log in to your credit card account online. You can also contact your bank over the phone to ask what your minimum payment is for the month.

As part of the Credit CARD Act of 2009, credit card issuers are legally required to provide a minimum payment warning on each billing statement. This warning tells you the total time it will take to pay off your credit card balance and how much interest you’ll pay by only making the minimum payments each month.

How Does Making Only the Minimum Payment Affect My Credit?

Paying at least the minimum due each month by the due date is key to keeping your payment history intact. Payment history is the most important factor in your credit score, and even one 30-day late payment can have a negative impact on your scores.

However, paying only the minimum due each month can potentially have a negative impact on your score, depending on how much revolving debt you have. Carrying a high balance could lead to a high credit utilization ratio, which calculates your total balances as a percentage of your total available credit. A credit utilization rate above 30% has the potential to drive down your credit scores.

Paying more than the minimum also ensures your balances are paid off in a timely manner. According to Experian’s credit card payoff calculator, it would take five years to pay off a $2,000 balance on a credit card with 20% APR making only the minimum monthly payment of $54—and you’d pay over $1,100 in interest.

The Bottom Line

Understanding what goes into calculating your minimum payment is a big piece of being a savvy borrower and managing your credit card well. Remember to aim to pay more than the minimum due to save money on interest and maintain good credit.

If you’re looking to pay off your credit cards or want to learn more about your current credit card debt, check your credit report and monitor your credit. For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We’re here to help you make the best financial decisions.

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