Credit card basics: statements, grace periods and interest
In short: each month your card sends a statement. If you pay the full statement balance by the due date, most cards charge no interest on purchases, thanks to the grace period. If you pay only the minimum payment, interest is charged on what is left, and the debt can take years to clear.
Words on your statement
- Credit limit: the most you can owe on the card.
- Statement balance: what you owed on the day the statement was made.
- Current balance: what you owe today, including newer purchases.
- Minimum payment: the smallest amount you must pay by the due date to avoid a late fee.
- Due date: under federal law, it must be the same day each month, and the bill must reach you at least 21 days before it.
- APR: the yearly interest rate. Cards often have different APRs for purchases, balance transfers and cash advances. See What is APR?
The grace period
Most cards give a grace period: if you paid last month's statement balance in full, new purchases don't collect interest until the due date. Once you carry a balance, you usually lose the grace period and interest starts on new purchases too, until you pay in full again. Cash advances normally have no grace period at all.
How interest adds up
Card interest is usually worked out daily from your APR. As a rough guide, a $1,000 balance at a 24% APR costs about $20 in interest a month (24% ÷ 12 = 2%). Your statement must show how long it would take to pay off your balance with only minimum payments, and how much it would cost in total. That box is worth reading.
Common fees
- Annual fee: charged by some cards each year.
- Late fee and possibly a higher penalty APR if you pay late.
- Cash advance fee for taking cash.
- Balance transfer fee, often a percentage of the amount moved.
- Foreign transaction fee on purchases in other currencies, which matters if you travel home or shop from sites abroad.
Habits that help
- Set up an automatic payment for at least the minimum, so you are never late, and pay the full statement balance when you can.
- Keep your balance well below your limit. A low credit utilization (the share of your limit you use) helps your credit score.
- Don't treat the credit limit as extra income. Plan card spending in your budget.
- Newcomers without a US credit history often start with a secured card: see Building US credit from zero.
Handy tools
- Monthly budget planner: see what is left each month and how your spending splits up.
- Loan and EMI calculator: monthly payment, total interest and a year-by-year table.
General information, not financial advice. Rules, fees and rates change and depend on your situation. Check with your bank, the provider or a qualified professional before you decide.