Understanding Credit Card Fees and Terms

To make the most of your credit card, familiarize yourself with its fees and terms. The “Schumer box” at the top of your cardholder agreement lists the card’s most important interest rates and fees, including:

• Purchase APR: The interest rate you’ll pay on purchases for any remaining balance you don’t pay off before the grace period ends.
• Penalty APR: A higher APR triggered by missing a payment, which may apply to future purchases or existing balances.
• Balance Transfer and Cash Advance APRs: Typically higher than purchase APRs.
• Annual Fee: Often associated with cards offering rewards and perks.
• Cash Advance Fees: Additional fees for taking a cash advance on your credit card.
• Balance Transfer Fees: Usually 3% to 5% of the amount transferred.
• Late Fees: Imposed if your payment is even one day late.
• Returned Payment Fees: Charged if the account used to pay your bill has insufficient funds.
• Foreign Transaction Fees: Applied to purchases outside the U.S. or in foreign currency.
• Grace Period: The time between the end of the billing cycle and the payment due date.

Always Pay Your Credit Card Bill on Time

Paying your credit card bill late can incur late fees or penalty APRs and damage your credit score. Streamline your monthly bill payments to stay on top of due dates by setting phone and calendar reminders, scheduling one day a month to pay all your bills, or setting up automatic payments to cover at least your minimum amount due.

Pay More Than the Minimum Payment

Making a minimum payment is better than missing a payment, but paying your credit card bill in full every month is ideal. If making the minimum payment leaves a balance on your account, you’ll incur interest on that amount. To avoid accumulating interest, pay your statement balance in full. If you can’t pay the entire statement balance, pay as much as you can.

Keep Credit Card Balances Low

To keep your card balances low enough to pay off each month, set a budget and avoid impulse purchases. Using credit cards for things you’d buy anyway (such as groceries or gas) instead of for splurges or impulse buys can help you keep spending in check. A growing credit card balance can hurt your credit score if your credit utilization ratio gets too high. Aim to keep credit utilization below 30%.

Set Up Account Alerts

Putting text or email alerts on your credit card accounts can help you track your spending, prevent late payments, and spot fraud. Alert options may vary by card issuer, but you can usually choose:

• Payment and Balance Alerts: Payment due date reminders, payments posted, approaching credit limit, and balance updates.
• Transaction Alerts: Purchase alerts, foreign transaction alerts, card declined alerts, cash advance alerts, and balance transfer alerts.

Common Credit Card Mistakes to Avoid

In addition to following the steps above, you should avoid these common credit card mistakes:

• Maxing Out Your Credit Card: Using more than 30% of your available credit on one card can negatively impact your credit score. To get your credit card balance under control, stop using the card and make a plan to pay down the debt.
• Closing Unused Credit Cards: Closing an account reduces your total available credit, instantly raising your credit utilization rate. If the card has a fee, see if you can downgrade to a card without one. If it doesn’t have a fee, use the card regularly for one small purchase a month and make on-time payments to positively impact your credit score.

Card Smarts

Savvy use of credit cards can boost your financial health. Monitoring your credit score is also crucial. If your credit score isn’t where you’d like it to be, bringing late accounts current and paying bills on time can help improve it.