It's equal to the interest you pay on your unpaid balance for that billing period.Ĭredit cards generally give their customers a grace period, a time between the end of a billing period and the date payment is due. The financing fee is what you pay for the privilege of using the credit card. To calculate your credit card interest, card companies use the following formula:Īverage Daily Balance x Daily Periodic Rate x Number of Days in the Billing Period = Financing Fee To account for months of different lengths, credit card companies calculate interest based on what's called a Daily Periodic Rate. The interest you'll pay from month to month is roughly the APR/12. The lower your credit score, the higher the APR you'll likely be offered. The listed interest rate for your credit card rate is known as the annual percentage rate, or APR.

If you don't pay your credit card bill in full, you'll be charged interest. A few big medical bills or a period of unemployment can be enough to put many people over the edge into credit card debt.

Your credit score will be high and you'll be able to qualify for the best interest rates on a home mortgage. You won't have to pay any interest and you'll get the benefits that your credit card offers, like points, miles or cash back.

How Credit Card Interest WorksĪs a credit card user, your best case scenario is to pay your bill in full and on time every month. Should you start with the debt that has the highest interest rate, or motivate yourself by paying of the smallest chunk of debt first? What about a balance transfer or a personal loan? The answer depends on your circumstance, but we've got the basics covered right here. Now what? How do you know which debts to pay off and when? It's complicated.

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