7 Reasons To Make at Least the Minimum Payment on Your Credit Card

Introduction

When you’re trying to pay down your credit card balances as part of a debt-reduction strategy, you’ll probably want to put as much as you can afford toward that goal. But it’s always crucial to at least pay the minimum amount due.

So if money is tight and you find yourself tempted to skip a payment, remember that it can cause more damage than you might think.

Quick Answer: What Happens If You Only Make the Minimum Payment?

If you only make the required minimum monthly payment, you’re fulfilling your payment obligations and keeping the account up to date. However, it can make debt more expensive over time because interest will continue to accrue. And compound interest means you’re paying interest on the interest.

For example, let’s say you have a $1,000 balance on a card with a 28% APR, and your minimum payment is $30. If you just pay the minimum, it will cost you more than $2,000 in interest over 14 years before that debt is paid off.

What Is a Credit Card Minimum Payment?

Minimum payments are the minimum amount you can pay on a monthly credit card bill in order to keep the account in good standing. This gives you the option of dealing with debt over time.

The amount of your monthly minimum payment depends on a few different things. But it’s often calculated as a certain percentage of your overall credit card balance, like 1% to 3%, or a flat dollar amount.

Your account terms and conditions should lay out how the minimum payment is determined. And your monthly statement will always provide the exact minimum amount and due date.

Why the Minimum Payment Matters

Paying at least the minimum by the due date can keep your account current and help avoid any consequences from late payments. But paying less than the minimum, or not paying at all, means you’re missing payments — which comes with a cost. In fact, it comes with several costs.

Because of that, you have numerous good reasons to make at least the minimum payment on your credit card — and more when you can. So let’s take a look at the fees, interest, credit reporting, credit utilization repercussions, and collections risk that may result from your choices.

Reason 1: You May Incur a Late Fee

If you don’t pay on time, you’ve obviously got a late payment. But did you know that a payment for less than the minimum amount due, even if it’s received on time, could also be considered late? It’s true. Most credit card agreements specify that payments for less than the minimum amount due are subject to late fees.

Of course, multiple payments made and received before the due date that add up to at least the minimum amount due for that billing cycle still count as making the minimum payment — as long as your creditor allows multiple payments to be made per cycle.

So, for example, if the minimum amount due is $25, and you make two separate payments of $13 that are both received before the due date, you shouldn’t be charged a late fee. Since you paid $26 total on time for the billing cycle, which is more than the minimum payment due, your account should remain in good standing.

But if you make a single payment for less the minimum amount due — or multiple payments that don’t add up to at least the minimum — you’re still typically considered late. And despite plenty of discussion on what makes a fair late fee, it’s still up to $30 the first time you’re late and up to $41 for subsequent violations as of the time of this writing.

Reason 2: Your Account May Be Reported as Past Due

We’ve established that your payment counts as late if you don’t pay at least the minimum by the due date. But if you still don’t pay for a full billing cycle — which is typically 30 days past due — your late payment is considered missed.

At that point, most creditors will report the missed payment to the credit bureaus. And even a single missed payment can drop your credit score, since payment history is the most important factor in determining credit scores. On top of that, each missed payment can stay on your credit report for up to seven years.

If you make a payment for less than the minimum, the credit card company will most likely accept it. But it doesn’t mean your account is in good standing. Unless you also pay the rest, you’ll probably be in violation of the terms of the credit card agreement, which can lead to a late or missed payment.

Reason 3: Your Debt May Be Sent to Collections

If you don’t get a payment arrangement from your creditor, and you continue to miss payments, you may find yourself dealing with collections. Because after four to six months of non-payment, many creditors will charge off your account and sell the debt to a collections agency.

This can create additional stress for you. And it may also affect your credit reports. Because if every missed payment gets reported, as well as the charge-off itself, you’ve racked up numerous negative dings just from the one card.

Reason 4: You’ll Likely Pay More in Interest

Depending on how much you owe on your credit card, making the minimum payment may not reduce your outstanding balance by much — but it should reduce it by some. And the amount you end up paying in interest depends on the annual percentage rate (APR) your credit card charges combined with the balance you owe. The lower your outstanding balance on that card, the less you’ll typically pay in interest.

Many credit cards also calculate the interest daily. Since interest is compounded, you’ll usually benefit by paying more and paying sooner. In fact, choosing to pay your credit card earlier in the month is a great way to save some money.

Reason 5: Your Interest Rates May Increase

Paying more in interest because you’re carrying a larger balance is one issue. But it could go a step further, where you actually end up paying a higher interest rate too.

One way that could happen is if you’re currently enjoying a lower promotional interest rate on the credit card, like from a balance transfer. If you pay late, you may forfeit that interest rate and be charged a substantially higher rate.

Your credit card agreement may also stipulate that the issuer has the right to assess a penalty APR triggered by specific negative behaviors, like allowing the account to reach 60 days past due. Depending on terms spelled out in the agreement, that penalty APR could retroactively apply to existing balances rather than just going forward.

Reason 6: Next Month’s Minimum Payment Will Be Higher

A missed or short payment doesn’t just go away. It will usually be tacked on to the minimum amount due on your next statement, plus any fees for missing a payment, which creates an even higher minimum on your next statement.

And if it wasn’t possible to make the minimum payment on the last statement, it may be even tougher to make the larger payment next month — unless your financial circumstances change for the better. 

Remember that your balance may also go up if you make any new purchases or get charged related interest and fees. It’s good practice to review your statements before the due date so you have some advance warning of what you’ll be dealing with.

Reason 7: It Could Lower Your Credit Score by Raising Your Credit Utilization

Any ding to your credit score from missed payments is one concern. But not paying at least the minimum amount due could also lower your credit score by affecting your credit utilization ratio. That’s a measure of how much of your credit limits you’re currently using, and it’s an important equation for calculating credit scores.

Most people are surprised the first time they hear this, but experts recommend using less than 30% of your credit lines for an optimal credit score. So if your credit limit is $1,000, that would mean only charging $300 or less.

Should You Pay More Than the Minimum?

Unless it will cause more financial issues as a result, paying more than the minimum amount due is almost always beneficial. It can help reduce your balance faster while potentially lowering your interest charges.

A good strategy is to prioritize the minimum amount due first. Then you can pay more towards your outstanding balance when it’s possible, as long as your creditor lets you make multiple payments in a given month.

Ways To Avoid Missing Your Minimum Payment

Most of us can’t remember when various bills are due, so setting up reminders, notifications, or automatic payments to keep on top of it is a good strategy. This could be as simple as a note in your day planner, a recurring calendar event, or due date alerts and notifications in your credit card app. But of course, those methods still require you to take the second step of making the payments.

An even easier way to make sure you pay on time is to set up AutoPay for at least the minimum amount due. Most banks will let you customize your due date to align with your payday, or to spread out payment requirements between other bills you might have. But you’ll still want to monitor your bank account to make sure you have enough funds to cover the AutoPay withdrawals.

With so much at stake from failing to make the minimum payment, what should you do if you absolutely can’t come up with the payment? Probably one of the best courses of action is talking to your creditor so they’re aware of your situation.

They may be willing to waive fees, take partial payments, or work out some other arrangements, especially if you’ve made consistent, on-time payments up until that point. At the very least, they’ll appreciate you keeping the lines of communication open. 

FAQs About Credit Card Minimum Payments

If you’re looking for more info about minimum payments, take a look at our answers to frequently asked questions.

Will my account be closed for not making minimum payments?

Depending on your account’s terms and current status, your credit card issuer may be able to close it or restrict usage. Repeatedly missing payments is a big red flag for creditors because it may paint you as a credit risk. The best way to understand any potential repercussions is to check your credit card terms or call customer service.

Is it bad to only pay the minimum on a credit card?

Paying only the minimum amount due is typically enough to keep your account current and avoid late fees. However, doing this long term can make your debt repayment slower and more expensive. So it’s a good idea to pay more than the minimum when possible.

Does making the minimum payment hurt your credit score?

Making the minimum payment can actually help your credit score by establishing a positive payment history, which is one of the most important things you can do for your score. But on the flip side, only paying the minimum could hurt your credit score in other ways, like having a high credit utilization ratio.

What should I do if I can’t make my minimum payment?

If you absolutely can’t make even the minimum payment due on time, it’s important to contact your credit card issuer as soon as possible to let them know. However, the minimum payment is designed to be manageable in most cases. So if you’re facing challenges with being able to afford the payment, it might be time to review your budget and access some hardship resources if available to you.

Bottom Line

It’s always important to make at least your minimum payments in order to keep your accounts up to date, because delinquencies can cause bigger issues. But paying more than your minimum due is also a good idea, for a variety of reasons. Those reasons include lowering your outstanding balances for a more optimal credit utilization ratio and to save money on interest charges.

If you’re in the market for a credit card that you can use to make steady, on-time payments and build a positive payment history, Credit One Bank offers cards for a range of credit scores. See if you pre-qualify in less than 60 seconds — without harming your credit score.