Credit card issuers are required to keep your account current — they must accept minimum payments and cannot demand full repayment. But they are under no obligation to minimise your interest cost. The minimum payment formula is specifically engineered to:
The Credit CARD Act of 2009 addressed the worst abuses — double-cycle billing, retroactive rate increases, universal default — but the minimum payment formula itself remains untouched. Issuers are free to set minimums as low as they wish, provided they disclose the calculation method and include the statutory minimum payment warning on statements.
$5,000 balance, 22% APR, 2% minimum payment. After 12 months of making every payment on time:
| Month | Balance | Payment | Interest | To Principal | New Balance |
|---|---|---|---|---|---|
| 1 | $5000.00 | $100.00 | $91.67 | $8.33 | $4991.67 |
| 2 | $4991.67 | $99.83 | $91.51 | $8.32 | $4983.35 |
| 3 | $4983.35 | $99.67 | $91.36 | $8.31 | $4975.04 |
| 4 | $4975.04 | $99.50 | $91.21 | $8.29 | $4966.75 |
| 5 | $4966.75 | $99.34 | $91.06 | $8.28 | $4958.47 |
| 6 | $4958.47 | $99.17 | $90.91 | $8.26 | $4950.21 |
| 7 | $4950.21 | $99.00 | $90.75 | $8.25 | $4941.96 |
| 8 | $4941.96 | $98.84 | $90.60 | $8.24 | $4933.72 |
| 9 | $4933.72 | $98.67 | $90.45 | $8.22 | $4925.50 |
| 10 | $4925.50 | $98.51 | $90.30 | $8.21 | $4917.29 |
| 11 | $4917.29 | $98.35 | $90.15 | $8.20 | $4909.09 |
| 12 | $4909.09 | $98.18 | $90.00 | $8.18 | $4900.91 |
| Balance | APR | Months to Pay Off | Total Interest | Total Paid |
|---|---|---|---|---|
| $1,000 | 20% | 2 yr 2 mo | $270 | $1,270 |
| $2,500 | 21% | 6 yr 1 mo | $1,820 | $4,320 |
| $5,000 | 22% | 9 yr 7 mo | $6,520 | $11,520 |
| $8,000 | 23% | 10 yr 11 mo | $9,240 | $17,240 |
| $12,000 | 24% | 12 yr 1 mo | $13,600 | $25,600 |
| $20,000 | 25% | 13 yr 6 mo | $21,800 | $41,800 |
Paying the minimum on time does not hurt your credit score directly. It keeps your account in good standing and avoids the devastating impact of a late payment mark (which can drop your score 60–100 points).
The indirect impact: credit utilisation — the ratio of your balance to your credit limit — accounts for approximately 30% of your FICO score. Minimum payments barely reduce your balance, so your utilisation ratio stays elevated for years. A balance of $5,000 on a $6,000 limit card = 83% utilisation, which significantly suppresses your score regardless of payment history.
Under the Credit CARD Act, every monthly statement must include a “Minimum Payment Warning” box (12 CFR Part 1026.7). This box shows exactly how long minimum-only payments will take to clear your balance and what fixed monthly payment would do so in 36 months. The information is already on your bill — most people never read the small print.