Overdraft fees, which are charged when you exceed your credit limit, are nearly gone. Issuers can’t charge them unless you choose over-limit protection (where the issuer covers charges over your limit), and even then, you can prevent them by staying within your limit.
Interest is also fully preventable.
Speaking of needless costs: You don’t have to pay any interest regardless of how high your credit card APR is as long as you pay your credit card bill in full every month. This is due to the grace period on your credit card. Simply put, if you pay your payment in full, interest will not begin to accrue on any purchases until the following due date. Likewise, if you pay your following month’s bill in full, no interest will be charged, assuming you only use your card for purchases. If you keep it up, you’ll never have to pay interest.
If you do not pay your account in full — that is, if you carry a portion of your amount over to the next month — you will not only pay interest on that carried debt, but interest will also begin accruing on subsequent purchases immediately.
You may and should pay more than the bare minimum.
Credit card statements prominently reflect your minimum payment due, or the smallest amount you must pay to maintain good standing on your account. That can be perplexing. It may appear to be a nice suggestion: “You can pay the whole amount, but you could also pay this much smaller amount!”
Paying late has a significant cost.
Missing your deadline might rapidly become costly. You may suffer the following penalties depending on how late your payment is:
- Fees for late payments. These fees’ legal limits are changed on a yearly basis. However, the first offense usually costs much over $20, and additional offenses can cost up to $40.
- APR penalties The majority of credit cards no longer have penalty APRs, however some do. When you pay late, you will be charged a penalty APR, which can immediately boost your interest rate to 30% or higher for future transactions. If you are more than 60 days late with your payment, the penalty APR will be applied to your outstanding debt.
- Your credit score will suffer. A day late payment will not harm your credit. However, if you pay 30 days or more late, your payment will be recorded as late on your credit reports, lowering your credit score.
- Consider automating payments from your bank account. If you’re concerned about overdrafts, mark your due dates on a calendar as a reminder.
