When Do Credit Cards Charge Interest?

When Do Credit Cards Charge Interest?

It is common knowledge that credit card debt accumulates due to several factors – one of which is the buildup of interest charges. But these charges do not apply to your credit card accounts for no reason; most of the time the card user has caused it.

One way of managing your credit card successfully is by knowing how interest rates work and how they are applied to your account. 


Your Credit Score Has a Big Impact on Your Credit Card Interest 

When you apply for a credit card, don’t think right away that you will be getting the attractive advertised rate of that card. Your annual percentage rate or APR, upon your approval, will depend on your credit score.

It’s customary that credit card issuers advertise a range of potential interest rates on their products that ranges from 13.99% to 22.99%. Cashback and rewards credit cards are packaged uniquely to attract your business, but they often have higher rates so be sure that the benefits outweigh the risks of paying more for interest. 

Banks and credit card issuers set the interest rates on your credit card based on the risk you pose in their credit analysis. Among their concerns is your ability to repay, which is determined by studying your debt-to-income ratio. It’s possible that even if you carry a variety of credit card products, you’ll notice that they differ in interest rates. 

Below is a simple illustration of how credit card interest rates differ depending on your credit score. 

Credit Score Category Effective Interest Rate 
Deep Subprime (579 or lower) 21.0%
Subprime (580 – 619) 20.5%
Near Prime (620 – 659) 19.0%
Prime (660 – 719) 16.5%
Super Prime (720 or greater) 13.5%
Overall  15.6%


Fixed, Variable and Promotional Rates

When determining the best credit cards to apply for, you need to understand how cards vary depending on the type of annual percentage rates they carry. 

credit card interest rates

Fixed-Rate Card

Probably the most basic of all credit cards are those that come with a fixed rate; it’s straightforward and simple. But offers of fixed-rate credit cards are set within a time period only. Issuers set their own terms and factors on how and when their rates would change to a new one and for another set of time. When you apply for such a card, the issuer has to tell you how long the rate will remain fixed. They are also required to provide you a 45-day notice when the rate change to give you time to decide to continue using the card or change to a newer, lower rate card.

Variable Rate Card

Variable-rate cards have their interest rates go up or down in the direction of the prime interest rates. They use indexes such as U.S. Treasury Bills and Federal Reserve Discount Rate, among others, as their benchmarks. Because the variability of the interest rate at any given time is inherent to the product, issuers of this card are not obliged to send rate change notice to their borrowers.

Promotional Interest Rates

Credit cards with promotional rates work like fixed-rate cards – the rates are fixed for a specified promotional period. Some of these cards have promotional interest rates tied to other forms of bonuses, such as cash or discount coupons, when you make a specific amount of purchase.


What are The Other Types of Credit Card APRs, and When are They Charged? 

Like most credit card users, you may only be aware of your regular APR, or commonly known as purchase APR. When you pay off your purchase amount in full at the end of each billing cycle, this interest will not apply. When you pay only a portion of your outstanding balance, purchase APR will be charged on your unpaid amount.

However, when you start to make different transactions or mismanage your account altogether, you’ll be charged a different set of rates.

Cash Advance APR

Because your card also comes with a cash advance feature, it’s possible that at any point in time, you will draw some cash from your account. For this transaction, considered by your lenders as cash loans, you will be charged an interest that is higher than your purchase APR. The average balance transfer APR is at 23.68%. Likewise, there is also a fee that is charged each time you make a cash advance –  $10 or 5% of the withdrawn amount whichever is higher.

Interest rates for credit cards

Balance Transfer APR 

If you are transferring a balance from one of your cards to another, then a balance transfer APR would apply along with a fee that is at least 3% to  5% of the transferred amount 

Penalty APR

Penalty APR is considered to be the highest APR that an issuer can apply to your account. Penalty APR that is at least 29.99% is applied to your outstanding balance when you have missed paying your balance for more than 60 days. This APR is kept enforced for 6 months of continuous on-time payments.


Can I Dispute For Charges Applied on My Card?

A person should always take full responsibility in monitoring your credit card statement of account because billing errors are typical and may cost you more interest money later on. Once you have established that error is present, you have to send a dispute letter to your creditor within 60 days, and the law requires them to respond to you.

Here are some of the possible billing errors that can happen to your account:

  • Charges that list the wrong date or amount
  • Charges for goods and services you didn’t accept or that weren’t delivered as agreed
  • Mathematical errors
  • Failure to post payments and other credits, like returns
  • Failure to send bills to your current address — assuming the creditor has your change of address, in writing, at least 20 days before the billing period ends
  • Charges for which you ask for an explanation or written proof of purchase, along with a claimed error or request for clarification


How Can I Avoid Paying Interest on My Credit Card?

The only way to avoid paying interest on your credit card is to pay off your balance every month. But this is always easier said than done, and it only happens when you have regular money coming in to pay off what you have purchased a month earlier. The moment you leave a balance unpaid, that amount plus new purchases you’ve made will begin to incur interest charges.

You may, however, work on lowering your interest charges by:

  • Knowing your credit terms. Even if all credit cards generally have the same terms, they still have some differences depending on how they package their product. Knowing what factors are involved in charging fees and high interest will help you avoid them as you use the card.
  • Improving your credit score. By taking actions on ways to improve your score, you’ll have higher chances of bargaining for a lower interest rate on your credit card.
  • Paying your bills on time. Paying your bills on time and more than the minimum amount due will lessen the amount of your outstanding balance. This means less money added to your balance as interest charges.
  • Avoiding unnecessary cash advances on your credit card. The balance transfer APR is 8% higher than your purchase APR. This rate will apply until you have fully paid your cash advance amount.
  • Stick to a spending budget. Mindless spending using your credit cards will likely bring you to risk of default. 

Unless you’re diligent in paying your credit card balance in full each month, then you don’t have to worry about mounting interest charges. But like most people that carry a balance on their cards, paying for interest is longer avoidable. Interest charges are your bank’s or creditor’s way of balancing the risks that come with each credit card use. You, on the other hand, can avoid debt accumulation due to interest rates when you use your card responsibly.

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What is the Highest Credit Limit You Can Get?

What is the Highest Credit Limit You Can Get?

A lot of people consider their credit card’s usability to be as good only as its credit limit permits. Some find it to be true, especially when you have considerable plans to grow your net worth that involves a lot of credit. Would you still be able to manage a credit account with a higher credit limit? With perfect balance, you could.

What is the Highest Credit Limit?

Every credit card user, at one point, desired to have a higher credit limit. If you’re wondering how your credit limit stacks up and looking at requesting your card company to increase your limit, here’s a little information on what’s considered a normal or average credit limit and highest credit limit

Credit limits vary depending on the type of credit card you apply for. Some card companies initially give a new applicant a starting credit limit within the range of $5,000 to $10,000, or higher if the applicant is with a high credit score.

Based on 2019 Experian data, Americans on the average have a total credit limit of $22,000. As for the highest credit limit, anyone with a high or excellent credit score could get, that limit is $100,000.

What are the Benefits of Having a Higher Credit Limit?

You could be wondering if having a high credit limit is worth it because not everyone can employ the discipline in managing such an account. It could also serve as a debt trap for others with mindless spending behaviors. But a credit card account with higher credit limit comes with real benefits including:

Lower Credit Utilization

Credit utilization is the amount of credit you actually use versus your total credit amount. To be considered a good manager of your credit account by the credit bureau, this ratio must be at least 30% or lower. Any higher than this is an indication of bad credit.

A higher credit limit lowers your credit utilization. If, for example, you have utilized $4,000 of your $10,000 credit limit, that makes your credit utilization ratio on a 40% scale. Increasing your credit limit by another $5,000 will bring your credit utilization down to 26%.

Easier to Get Additional Loans and Credit

Your improved credit utilization will automatically merit you a credit score increase. And with a higher credit score, you’ll be able to approach lenders for additional loans with ease.

Helps in an Emergency

With more credit limits now available to you, you can quickly tap on it in cases of emergency that may call for a cash advance or unscheduled but urgent purchase.

Increases Your Rewards

If you do not carry a balance on your credit cards, charging your recurring expenses on them and quickly paying them off will earn you more points for rewards. It can, later on, reduce your spending in other areas of your expenses like travels, gifts, and clothes, among others.

Helps You Make Large Purchases Efficiently

You no longer have to split your large purchases between 2 or 3 cards that often carry different interest rates – this makes paying off those large amounts harder to manage.

How Do Credit Card Companies Determine Credit Limit?

A credit limit refers to the maximum amount of credit a financial institution extends to its client. The borrower, on the other hand, can tap on this credit limit at his discretion. Borrowers can apply for any or both these two types of credit: revolving and non-revolving.

  • Revolving credit line. This is considered as a dynamic financial product. As you manage your account with consistent and on-time payments, your creditor will offer you additional credit limits.
  • Non-revolving credit limit. This is a type of credit that is set on a one-time agreement and with a fixed amount of credit limit. Once you’ve spent your credit limit and have paid it off, the account is closed.

Even if credit limits can go as high as $100,000 on a single account, credit card companies are never too quick to grant such limits. At the initial stage of the card application, or if you request an increase, they would first go through a process of underwriting to determine what credit limit to give you.

Click on this here to learn about how credit card companies calculate interest on credit cards!

The underwriting process varies from company to company, taking into account their own methods of mathematical calculations and credit analysis. The procedure is not revealed to the public as the process also indicates how the company manages the credit risks while making money. The general principle applies: the higher the credit limit, the more the company trusts the borrower.

Factors That Card Companies Consider to Pick Your Credit Limit

Type of Credit Card

Some credit cards have predefined features. The more features the credit card carries, the higher is its requirement for a good credit score to be approved.

Your Income

While this is a consideration, having a high income doesn’t always mean getting a large credit limit. Itis because your income is just as good as its current status, and any change in economic condition may likewise affect it.

Debt-to-Income Ratio 

This ratio indicates your income versus the total amount of your outstanding debts. What lenders consider a good ratio is any number lower than 36%.

Credit History

Any trace of negative information on your credit report, most especially late payments and high balances, will make it less likely that you’ll get approved for a higher credit limit.

Other Credit Lines on Existing Credit Accounts

They would like to see how much credit line from other accounts you were able to manage successfully.

Co-applicant Income and Credit Information

Applying for a new credit card with a co-signer with a good credit history enforces the probability of being approved with a high credit limit.

Value of Security Deposit

Your security deposits in secured credit card applications will help to back that line of credit you’re seeking. Some card companies give you a credit limit with an amount that is equal to your security deposit, while others give twice as much.

what is a high credit limit

How to Request For Higher Credit Limit?

Having a higher credit limit gives you enough wiggle room when it comes to your credit and finances. And if your credit score merits it, why not consider requesting a higher credit limit?

Keep in mind that most card companies do not automatically raise your credit limit until you’ve made 6 to 12 months of on-time payments and haven’t exceeded your credit limit. Likewise, requesting a higher credit limit may hurt your score a bit because your card company will have to make a hard pull on your credit report. Be sure to check on your credit report and credit score prior to making a request and see if all your credit information there is correct.

Here are the steps on how you can request for credit limit increase:

Via Phone

  1.   Contact your card company’s customer service
  2.   Provide personal and credit information for verification
  3.   Make the request

Via Online

  1.   Log on to your card issuer’s online banking service
  2.   Update your personal details in the system
  3.   Make the request
  4.   Sometimes the issuer will prompt an auto-reply to indicate receipt of the request.
  5.   Wait for the issuer’s decision via email. 

When it comes to increasing your credit limit, really consider your overall financial picture first. A credit limit that you want does not always mean it is what you need. If imagining a higher credit limit takes you instantly to dream destinations and luxurious spending, then you might just be setting yourself up for more debt than you can afford. On the other hand, you think of your higher credit limit as a means to spend for income-generating assets, then that request may probably be in order.

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What are the 3 Major Credit Reporting Agencies?

What are the 3 Major Credit Reporting Agencies?

As a responsible consumer, you should not just limit your concern on learning how to keep your credit score at a good level or managing your debts well. But also, be aware of the role of credit reporting agencies and how they play a huge part in your credit journey.

What are Credit Reporting Agencies?

Credit reporting agencies also referred to as credit bureaus, are agencies that collect, package, and analyze consumer credit reports of individuals and companies from which credit scores are derived. From this piece of information detailing creditworthiness, they sell the report to lenders, merchants, or any financial institutions that may require viewing it.

Currently, there are over 1,000 local and regional credit reporting agencies throughout the United States. Some are small private enterprises working independently, while others operate as cooperatives by a group of merchants in a particular locality. Whatever their operational setup is, they are mostly fully or partially-owned, or under contract with the nation’s three major credit reporting agencies: TransUnion, Equifax, and Experian.

The credit information of individuals and companies they collect from lenders, merchants, and other business owners, and used for credit analysis include:

  • Payments, late payments, and delinquencies
  • Hard inquiries
  • New loan applications
  • Foreclosures
  • Bankruptcies

Apart from what you may typically know as the main service of credit reporting agencies – credit analysis – they also offer the following services for businesses and consumers:

  • Decision analytics – For lenders that details an individual’s credit behaviors
  • Marketing support – For businesses and lenders offering credit programs for pre-approved individuals
  • Risk and portfolio management services – For lenders targeting institutional borrowers
  • Consumer services – Credit monitoring, identity theft protection, and fraud prevention

What are the 3 Major Credit Reporting Agencies?

The major credit reporting agencies each essentially serve a particular geographic area, until they have purchased, or made contracts with smaller agencies that allow them nationwide service coverage.


  • Serves the financial, retail, credit card, telecommunication and utilities, transformation, IT, healthcare industries, as well as the government.
  • Their services are present in the U.S., Chile, Argentina, U.K., Spain, Portugal, Canada, Peru, El Salvador, and Brazil.


  • They help clients target prospective customers and manage existing customer relationships through the information they provide.
  • They support clients in over 50 countries.


  • They offer risk and portfolio management services.
  • They serve a broad range of industries which include banking, insurance, retail, communication, energy, healthcare, and collection agencies.
  • They open nationwide via independent credit bureau and have subsidiaries and divisions in the U.S. and abroad.

what are the credit bureaus

How do the 3 Major Credit Reporting Agencies Differ?

While the three major credit bureaus gather practically identical reports from lenders and other businesses you deal with, it is in their manner report analysis, and the accuracy of output is what sets one from the other.

Because it is not mandatory for each lender that you deal with to report to all three agencies, some of your current credit information may not reach 1 or 2 agencies for updating your credit record. On some occasions, lenders or businesses prefer one agency over two more in requesting credit reports and sending credit information of their borrowers. It may cause some level of difference in your credit report from all three agencies at a particular time.

Other ways on how the three agencies differ from one another include:

  • They have a different method of collecting credit information from lenders and businesses.
  • They apply proprietary weight and algorithms to the submitted credit information in different ways.
  • They use different scoring models.
  • They provide lenders with different credit reports depending on which report your score is based.

What are The Best Ways for You to Check and Monitor Your Credit Report?

As mentioned, not all lenders send information to all three credit bureaus. You may find a few updates on your report from one bureau, but not on another. In addition, any human error in reporting may cause incorrect information to appear on one report or all.

The 3 major credit bureaus do not share credit reports so you can’t expect errors to correct on their own. This is where your personal responsibility comes in.

Here are the steps you can do to make sure your credit report in all three agencies is updated with the correct information:

credit report dispute form

  1. Request a free annual credit report from all major credit bureaus.
  2. Look for any signs of errors in your report.
    • New accounts you don’t open
    • Identity errors
    • Incorrect reporting of account status
    • Data management errors
    • Balance errors
  1. Gather all your documents to support your dispute.
  2. Submit a dispute with the three credit bureaus.
  3. Review the results of the dispute.
  4. Check your credit reports.


Credit reporting agencies play an important role in the consumer credit ecosystem. They help creditors balance financial risks involved in lending money and enforce discipline among borrowers with regards to their credit behaviors.

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How Do Credit Card Companies Calculate Interest?

How Do Credit Card Companies Calculate Interest?

Is it time to celebrate? Did you just get your first credit card and now you’re wondering how the interest will work? Or have you been using credit cards for a while and starting to wonder why your balance never seems to go down even though you’re making your minimum monthly payment on time every time? Credit cards can come chocked full of different fees and terms, and even interest rates. Interest rates can be fixed or variable, or even temporarily fixed for a short amount of time before switching to a variable. They can change on what seems like a drop of a dime, or depending on your spending, and payment behavior. 

Credit cards can be really confusing, especially if you’re new to the line of credit game. The majority of credit card companies are sure to put all of the details explaining your card in detail deep in the fine print. For any card you have currently or considering applying for, it’s best to make sure you know the terms the card company is offering inside and out. But if you can’t do that, or just don’t have the time, there are a few minimal pieces of credit card knowledge you should stock your brain with. 

The most important of these pieces of knowledge, perhaps, is knowing how credit card interest works in terms of billing cycles and compounding methods. Most people have credit cards, and at least half of credit card owners carry a balance which is subject to interest. Credit card interest is spoken of in terms of APR (Annual Percentage Rate). The interest rate can vary from card to card and from time to time. And they definitely vary from person to person based on each person’s credit score. 

Calculating Interest

APRs are identified in terms of a year. But your daily interest rate is a different number. To find out what you’re paying each day in terms of interest, simply divide the APR by 365 days. So if your card carries a 14.95% APR, divide 14.95 by 365 and you see that you are paying 0.0409589% interest on a daily basis. So if you carry a balance on one day of $495, the interest the credit card company will charge you for that day is $495 x 0.0409589% (or 0.000409589), which is $00.20. 

Compounding Interest

The next day, provided you haven’t made any new purchases or payments, your balance will be $495.20. At the end of the day, interest is calculated again but, this time it’s calculated against the new balance. So, $495.20 is multiplied by 0.0409589% or 0.000409589. Interest for this day comes to 20 more cents. Your total balance for this day is now $495.40. The following day, 20 more cents is added to bring your balance up to $495.60.

New Charges

What if you make a $2000 purchase on your card, bringing the balance up to $2495.60? What would be the interest at the end of the day you made this big purchase? The same rules apply. Interest is calculated daily regardless of the balance. The credit card will multiply your balance of $2495.60 by 0.000409589 which is $1.02. 

Your balance at the end of the day will be $2496.62. If you make no new charges and you have, let’s say, 10 days left in your billing cycle then, you’ll be charged $10.22 in interest more before your next payment is due, bringing your total balance to 2506.84. You’ve made $2495.00 worth of purchases and generated $11.84 in interest for the credit card company over a 14-day period. 

interest rates percentages

Variability In Interest Rate

Each card is unique. Some may come with very straightforward APRs, while others may offer one APR for purchases and another for balance transfers and cash advances. 

Many card companies offer introductory APRs for terms of six months, a year, or other predetermined time periods. Then the APR adjusts after that period is over. If you do apply for a card of this nature, just make sure you know what the APR is after the introductory term expires. 

Grace Periods

Some credit card companies do offer grace periods for a certain amount of time for each billing cycle. If you pay off your balance in its entirety each billing cycle before the grace period expires (usually by the payment due date), the credit card company will not charge you interest for that billing period. If you don’t pay your balance off in full, then the interest charges will appear during the next billing cycle. Not all credit card companies offer grace periods, so make sure to read the fine print of any credit card offer you receive. 

Variable Rates

Credit cards often come in the form of variable rates. These variable rates fluctuate at a certain number of percentage points above prime. The prime rate is based on the federal funds rate, plus three additional points. Because the federal funds rate can fluctuate, your variable rate will fluctuate too. So just make sure if you are considering a card with a variable rate, the terms of the rate are something you are prepared to deal with financially. 

The Minimum Payment

Credit card companies offer very low minimum payments for a reason. The less you pay off each month the more interest rate a credit card carrier can let accumulate in your account. While it may be saving your budget month to month to pay just the minimum balance, in the long run, you end up paying much more when you finally do end up paying off what you owe. 

Also, your credit rating is done no favors by only paying the minimum each month. As your debt to credit ratio tightens, your credit score will begin to go down. That’s because a significant portion of your credit rating is based on the comparison of how much debt you owe to how much credit you have available. Paying off your balance is your surest bet to maintaining a high credit rating and paying minimal interest month to month.

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