Understanding How Your Credit Card Payments Are Calculated

Understanding How Your Credit Card Payments Are Calculated
Point Editorial

Credit cards are one of the most popular forms of payment. To use them wisely, it’s important to understand credit card payments.

Every cardholder must pay at least a minimum payment per billing cycle. This amount goes toward paying off the bank balance you’ve incurred through spending. 

Late or missed payments can affect your credit score and cause your interest rate to rise. 

Read on to learn more about minimum credit card payments and how your card issuer calculates them.

What is a credit card minimum payment? 

The total amount that you owe during a billing cycle is known as your card balance. This value is the sum of all your expenses, interest fees, annual fees, and any penalties.

Each month, you'll receive a billing statement that will indicate the minimum monthly payment you need to make against this balance, as well as the subsequent due date. 

At the very least, paying the minimum will keep you in good financial standing, and interest charges won't increase. Whatever you don’t pay off will be carried over to the next month and so on. 

You can also set up automatic payment transfers so that you don't have to stress about possibly missing any due dates. 

However, it is always better to pay off your entire bank balance if you can. By doing so, you will avoid interest fees altogether. But regardless of what you choose to do, always make sure you always make your chosen payments on time.

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Credit cards, despite their convenience, are vulnerable to changes, and having a reliable financial safety net like Point Card is a wise idea. 

How do credit card issuers calculate minimum payment?

Once you receive a credit card, you are contractually obligated to make minimum payments monthly, or you will face fees and penalties. Minimum payments barely exceed the interest rates incurred every month, so only making the minimum payment could take much longer to pay off your balance fully.

Generally speaking, payment calculation depends on how much you owe in relation to your balance. Nevertheless, there are a few additional factors that can influence your payment amount.

If you owe a lot: If you owe more than $1,000, your minimum is dependent on your balance. It comes out as approximately two percent.

If you owe some: If you owe $25–$1,000, minimum payments are a predetermined, fixed amount, most likely $25. Remember, this fixed amount varies from card to card.

If you owe very little: If you own less than $25, your minimum payment will be your total balance if you owe less than $25. So, for example, if you owe $15, that will be your predetermined minimum payment.

How are credit card payments calculated?

Credit card repayments can be determined in two ways: through a flat percentage or a combination of percentage, interest, and extra fees. 

Flat percentage

Again, the standard flat percentage for most cards is two percent of your current credit card balance. For example, if your balance is $10,000, you would be required to pay $200. 

Percentage, interest, fees 

In addition to your flat percentage, additional costs and interest fees can also come into play (but your flat percentage rate may be lower as a result). 

Let’s say, for example, that your current balance is $20,000. First, you determine the percentage of your balance. Let’s assume the flat rate is still two percent. 

$20,000 x 0.02 = $400

Now, let’s say you have $160 in total interest and $40 in late fees. Add all three values to determine your minimum payment.

$400 + $160 + $40 = $600 

Your minimum payment would be $600. 


Can monthly minimums change from month to month?

Yes. Remember, late or missed payments, any resulting fees and penalties, incurred interest, and your spending habits are all factors that can determine your minimum payment amount, especially if it is not a flat percentage.

Can I make multiple credit card payments in one month?

Yes. Any subsequent payments will help keep not only your outstanding balance low but your interest too. Avoiding credit card debt will also be easier.

Does making minimum payments affect my credit report and credit score?

Making payments is essential to maintaining a good credit score. It is a double-edged sword. Timely minimum payments will help ensure that your score remains steady. But having a persisting, high credit utilization due to such small payments can also lower your score. After all, credit utilization accounts for 30 percent of your overall credit score, the second most significant factor after your payment history.

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