The minimum payment on a credit card is the smallest amount a cardholder is required to pay on their account balance each month
. It is calculated based on the current balance and interest rate, and it can change from month to month depending on the cardholder's standing
. Credit card minimum payments are usually calculated in one of the following ways:
- Percentage of the balance : A percentage of the cardholder's balance plus interest or fees from the prior period
- Flat rate : A fixed dollar amount, often $25, that is not dependent on the balance
- Percentage plus interest and fees : A lower flat percentage of the statement balance, excluding fees and interest, with the remaining amount calculated as a percentage of the balance
Paying the minimum payment on time can help you avoid penalties and fees, but it will also result in paying interest charges on the remaining balance
. To avoid paying interest altogether, it is advisable to pay off the full balance each month
. Missed payments can impact credit scores, especially if a cardholder makes a late payment after 30 days, as lenders can report late payments to the three major credit bureaus
