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When do credit cards charge interest?

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    With credit cards, you don't have to carry cash or worry about a debit card balance. As you spend your available credit, you may even earn rewards. However, credit cards charge interest if you carry a balance. Read on to learn more.

    How do credit cards work?

    A credit card is a form of revolving credit, meaning you can draw on it and pay at least the minimum monthly payment by the due date. To use your card, you'll either swipe, tap or insert it into a card reader. When shopping online, you'll enter the card number. Then, your credit card's balance increases by the dollar amount of the transaction.

    Every month, your credit card company sends you a statement containing all your transactions for the billing period. That statement will include a statement balance, a minimum monthly payment and its due date. By agreeing to your credit card's terms, you're responsible for paying at least the minimum payment due each billing cycle.

    What is credit card interest?

    Interest is the cost of borrowing money. Credit card interest is often expressed as an annual percentage rate (APR), an important part of the calculation of interest charges assessed on your account's outstanding balance.

    In your cardmember agreement, you might find several APRs. An important one is your Purchase APR: the rate of interest charged to your account each year for purchase transactions.

    How is credit card interest calculated?

    There are a few methods credit card issuers use to calculate interest; your cardmember agreement will have the details. Generally speaking, carrying a balance from month to month causes interest to accrue on a daily basis based on the Daily Periodic Rate (DPR). What we call DPR is your daily interest charge. It's calculated by dividing your credit card's APR and by 365 (days in the year).

    When do I get charged interest on my credit card?

    You may get a grace period of around 21 days to pay off your balance. The due date on your statement is the end of your grace period, which is when interest starts accruing if you have not paid off the full balance.

    Cash advances have a separate APR and begin accruing interest immediately. Balance transfers and convenience checks often come with a promotional APR for some time frame. That's usually between 10 and 18 months of opening the account. After that, any balance that wasn't paid begins accruing interest.

    How to avoid interest charges on a credit card

    Following these tips may not only avoid credit card interest, but they could also help your overall credit health:

    • Pay your balances on time: Avoid carrying a balance on your credit card if possible. When your statement is issued, you'll have a statement balance and a minimum amount due. If you pay the statement balance on time, there should not be a balance to charge interest on.
    • Establish and stick to a budget: Creating your budget should highlight what you can spend based on your income, bills and debt. That spending limit is important to follow. When you aren't spending more than you can afford to, it's reasonable to pay your credit card statement balance each month and avoid or reduce interest charges.
    • Set up payment alerts or automatic payments: Alerts remind you to pay in case you're forgetful. Automatic payments take care of the payments for you every month, so you don't really need to think about paying on a set day. Either way, paying your statement balance each month by the due date can help avoid interest charges on a credit card.

    How to get a lower interest rate on a credit card

    Are you looking to qualify for a good interest rate on a new account or trying to lower an existing interest rate? Either way, here are some tips that could help:

    • Work on your credit score: Improve your score as much as possible by managing your credit card effectively. Actions like paying on time, carrying a low balance, and keeping a low credit utilization ratio should improve your credit score over time.
    • Maintain a perfect payment history: This is an important factor of your credit score and appears on your credit report. If you have a perfect payment history with lenders, the new accounts you apply for may be approved at low interest rates.
    • Take advantage of promotional APRs: If you need to make a large purchase soon, consider opening a credit card with a 0% introductory APR. That can help you pay for the purchase interest-free over the introductory period, which may last 10 to 18 months.
    • Use a buy-now/pay-later feature: Some credit card companies offer this feature that usually comes with small fees or a lower APR than your standard purchase APR. My Chase Plan® allows you to pay over time for purchases on your Chase credit card.

    Lowering an existing interest rate may help you manage interest charges and accumulating debt. However, some of the keys to avoiding interest charges on your credit card are spending wisely and paying your full balance at the right time.

    In conclusion

    Interest is one of the main features of credit cards. Your cardmember agreement will have your credit card's interest rates, as well as information about how they're calculated and when they're assessed. To continue learning, read more on interest and APR.

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