How and When Is Credit Card Interest Charged?

Image shows a man and a woman at their table with milk and bread, paying their credit card bill on a tablet. Text reads: "What to know about being charged credit card interest: you'll be charged whenever you don't pay the full balance from the previous billing cycle, you won't be charged on your purchases if you started the billing cycle with a zero balance or you paid your last statement balance in full, the amount of interest you pay each month can fluctuate based on your credit card balance and any changes to your interest rate."

The Balance / Bailey Mariner

Most people aim to keep their credit card cost at $0, especially rewards credit card users who work to optimize their credit card perks. Getting a credit card with no annual fee is a start at minimizing credit card costs. However, if you carry a balance, you could still incur a cost in the form of interest. Knowing how and when credit card interest is charged is the best way to avoid paying interest and keep your credit card free.

Your credit card issuer will charge interest whenever you carry a balance beyond the grace period. Credit card interest isn't a one-time thing either. Each month you carry a balance over from the previous month, you’ll have a finance charge added to your balance.


You won't be charged interest if a 0% promotional rate applies to your balance.

When You’re Charged Credit Card Interest

You'll be charged interest whenever you don't pay the full balance from the previous billing cycle. For example, if your credit card statement balance is $1,000, you'll have to pay the full $1,000 to avoid being charged interest. Otherwise, your next credit card statement will include an interest charge applied to the unpaid amount.

Paying your balance in full each month gives you a grace period to send payment and avoid paying interest. However not all transactions have an automatic grace period, even when you paid in full the previous months. You'll be charged interest any month you make a cash advance or other type of transaction that does not have a grace period or if your credit card doesn't have a grace period at all.


If you have two different balances on your credit card, one with a 0% APR and one without, you'll still incur interest on the balance that has the interest rate.

Sometimes balance transfers have a promotional rate, while purchases receive the regular APR. You may incur finance charges if you transferred a balance to take advantage of a 0% rate and later made a purchase with the credit card before paying off the balance transfer.

When Credit Card Interest is Not Charged

You won’t be charged interest on your purchases if you started the billing cycle with a zero balance or you paid your last statement balance in full. You're also not charged interest on balances with a 0% promotional APR.


Your very first billing statement on a new credit card won't have a finance charge unless you made a cash advance or your credit card doesn’t come with a grace period (this is rare). If you pay the full balance before the grace period expires, you won’t pay any interest.

It is the case for any month that you begin the billing cycle with a $0 balance, for new and old credit cards and whether your credit card is open or closed. The grace period will start on the date the billing cycle ends and lasts about 25 days, depending on your credit card terms.

How Much Will You Pay?

The amount of credit card interest you pay each month can fluctuate based on your credit card balance and any changes to your interest rate. Your finance charge, which is how interest is applied to your balance, may be calculated in different ways based on your annual percentage rate and credit card balance.

Read the back of your credit card statement for details on how your finance charges are calculated.

Frequently Asked Questions (FAQs)

How do you calculate credit card interest?

To calculate your interest charge, multiply the outstanding statement balance by your credit card's interest rate. Remember, you should only apply the interest rate to the statement balance—any purchases since the last statement will not incur interest charges. You'll also need to turn the interest rate into a number by moving the decimal two spaces to the left. A 20% interest rate, for example, becomes 0.2.

What is a good interest rate for a credit card?

The average interest rate for a credit card is about 20%, so this may serve as a guidepost for comparing credit card offers. Business and student credit cards typically have the lowest interest rates, while store credit card rates are usually higher than average.

How do you reduce your credit card's interest rate?

You can always ask your credit card company to reduce your interest rate, but it's entirely up to the company whether it wants to or not. These requests can be made with a customer service representative. In general, you're more likely to get your rate reduced if you have a good history of paying on time and keeping your overall debt level low.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Discover. "How Does My Credit Card Interest Work?"

  2. Federal Trade Commission. "Credit, Debit, and Charge Cards."

  3. Experian. "What Happens After a Balance Transfer?"

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