Credit Scores and Reports

Basics of minimum payments


If your minimum payment is $50 but you owe $25, just pay the $25

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Question for the expert

Dear Credit Wise,
If I purchase an item for $25 and my minimum payment is $50 how much will I have to pay for that item. — Toney


Answer for the expert

Dear Toney,
Very simply, if your charges at the end of this billing cycle are $25 that is the amount you will owe to your creditor and must pay. I know the term “minimum payment” seems confusing if your purchases don’t even equal that minimum.

Minimum payments only come into play when you carry a balance. The minimum payment is set by your creditor, and is generally two to three percent of your balance. According to this story from 2014, “Survey: Card minimum payments rising,” most major creditors charge at the most $35 for their minimum. However, it appears that your creditor will charge you at least $50 anytime you go over that amount. So, if you have a $51 balance the minimum your creditor will accept will be $50. (I think it goes without saying that you should go ahead and pay the $51 and be done with it for this month.)

Any amounts under $50 at the end of the billing cycle will be due in full, as in your case. This is actually the best-case scenario for you and for all consumers. I always recommend paying off your credit card in full every month so that you avoid paying accrued interest on your charges.  These amounts can add up quickly, especially the higher your balance.

One of the best things to come out of the federal CARD Act was the advent of those little boxes on your credit card statement that explains what will happen if you only pay the minimum payment. This was an eye-opener for many consumers when they found out how long it would take to pay off their credit card if they only made the minimum payment. It also introduced a line that would show how increasing the minimum payment, many times by only a few dollars, would decrease the time it would take to pay off the debt and decrease the total amount of interest paid. Seeing that spelled out in simple terms has made a difference for many consumers.

I applaud your thoughtful use of the credit that has been extended to you. Remember that your available credit is a big factor in increasing your credit score.  The more credit you have available, the better for your overall score. There is nothing that says you must use all the credit you are offered, even though your creditor might love that.

Be wise with your credit!

See related: A guide to the CARD Act of 2009



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