Types of payments you can make

When making payments on a credit card, you will usually get a few choices- make the minimum payment, choose an amount, or make the full payment. Which one of these you choose will differ the impact it has on your creditworthiness. Here’s a breakdown.

Minimum payments

Your minimum payment is usually made up from a percentage of your total balance (the full amount you owe), the interest you’ve accrued, or a mix of the two. Paying only this every month suggests to lenders that you’re financially stretched and cannot afford to pay the money back.

Lenders calculate your minimum payment using the following:

  • A percentage of your total balance (the full amount you owe)
  • The interest you’ve accrued
  • Any charges on the account.

It’s not simply a case of choosing one or adding them up. There are calculations against a minimum amount (a minimum minimum payment, if you like), and there might well be witchcraft involved. Either way, it is the smallest amount you can pay off on your account that month, and is likely to change month on month.

Paying only this every month suggests to lenders that you’re financially stretched and cannot afford to pay the money back.

Paying only the minimum balance every month will take the longest time to pay back. To work this out divide your total balance by the amount you pay each month. That’s (on average) how long it will take, not taking any interest into account.

E.g. Your credit card currently has 1000 on it, You’re on a 0% promotional period, and you currently pay back £50 per month.

1000 / 50 = 20

It will take 20 months to pay this off in full. If you upped your payments to £100 per month, you’ll pay it off in only 10 months.

Choose an amount or pay in full?

You can additionally choose to make a payment that is between your minimum payment and the full amount, or you can pay in full. Generally, the higher this is, the better. Paying off your card in full every month means you’re unlikely to pay any interest, and that lenders will see you as responsible, and only taking debt that you can afford.

Late and Missed Payments

Late and missed payments don’t only occur with credit cards, you could miss a utility bill, a loan or mortgage payment, or even a payment on your phone contract.

Is it a late payment, or a missed payment?

This can cause some confusion- when does a creditor consider a payment missed, and when do they consider it late? The difference is quite simple: whether or not you’ve made the payment.

Consider this timeline.

Up until the payment is due, it is simply upcoming. Once the due date has passed, if it is still not paid, then it is a missed payment. Once the payment has been made, it is a late payment.

Missed Payments

So, you’ve missed a payment? Maybe it just slipped your mind, or you just couldn’t make ends meet. Perhaps you’re taking a look at your credit report, and you’ve noticed that you missed one in the past that you weren’t even aware of. Now what?

Firstly, these things happen. There’s no need to beat yourself up over it. A missed payment isn’t likely to throw your plans out of the window- as long as the rest of your credit report is generally good, and that you pay it as soon as you are able to.

If you have a missed payment on an account that you think is incorrect, you’ll likely want to challenge or question this. You can contact the creditor directly, or you can use our ‘Dispute It’ button next to the account on your credit report.

A series of missed payments between three and six months could lead to a Default, so it’s critical that you try and keep up to date on your payments.

Late Payments

Once a missed payment has been paid, it becomes a late payment. Generally, the more recently this occurred, the more it will affect your creditworthiness. So over time the impact of this will lessen. It will drop off your account after six years.

You may face penalties or charges for late payments- such as a loss of a promotional interest rate or a late payment charge. You’ll need to refer to the small print of your agreement to find out what these are.

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Last updated by Robert Edwards, May 2022

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