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What's residual interest on a credit card?

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    Have you ever paid your credit card balance down and then found an unexpected interest charge on the next bill? That may be residual interest. Residual interest, also known as trailing interest is, in the most basic terms, the interest that's carried over billing cycles.

    How does residual interest work?

    It may be helpful to know how residual interest works so you can avoid unexpected charges on your statements. When your statement is issued, there's a period before it gets to you and before you pay the balance. During this period, you may be charged interest each day, based on your annual percentage rate (APR). Then, though you may have paid your current statement balance in full, the charge appears on your next statement. This residual interest is calculated for you by your credit card issuer.

    Something to watch out for

    Be sure to watch your statements for residual interest. Interest is still accruing on your balance between the statement date and the date you pay the balance on the statement. If you've made no further charges, you think your next statement balance will be zero. Be sure to watch your statement for interest (residual interest) that accrued on the your balance between the statement date and the date you paid the balance on that statement. If that's the case and a residual interest charge goes unnoticed, it could affect your payment history with a late payment. Late payments can appear on your credit report, potentially impacting your credit score. Contact your card issuer to understand your options if you think you were charged incorrectly for residual interest.

    How to prevent residual interest charges

    While there are no guarantees, and it all depends on your card's terms, you can try a few things to help prevent residual interest charges:

    • Pay the balance in full on your account statements, rather than the minimum amount on the day it's due. You may be able to do this electronically or by calling your card issuer.
    • Use your card's autopay feature to Pay the balance in full on the day your account statements and reduce the chances of residual interest accruing once your balance is paid off.

    Clearly, residual interest, or trailing interest, is something you'll want to keep an eye on and try to avoid. To find out more, review your credit card agreement or call your card issuer directly with questions.

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