58 KIPLINGER’S PERSONAL FINANCE^ 02/2020may periodically raise your limit, and
eventually the maximum could reach
tens of thousands of dollars.
A record of on-time payments and a
growing income help boost your limit,
so you may want to heed any prompts
from your issuer to update your in-
come; the reminders often show up
by e-mail or when you log in to your
account online. Notably, a card issuer
may consider your spouse’s or part-
ner’s income if you’re 21 or older, even
if he or she isn’t named on the account
and you don’t earn income yourself.YOU PROBABLY KNOW THAT YOUR CREDIT
card comes with an interest rate, a
limit on how much you can spend and
a minimum amount that you must pay
each month. But if you’re not familiar
with the nuts and bolts of each card
component, take a little time to brush
up. Knowing the types of activities
that trigger a cash advance, for exam-
ple, could save you a bundle in interest
and fees, and smart use of the grace
period lets you finance a purchase
interest-free for several weeks.Annual percentage rate (APR). If you
don’t pay your statement balance in
full by the payment due date, you’ll
accrue interest on the unpaid amount
(unless your card is charging a 0%
APR for an introductory period). Re-
cently, the average rate ran about 17%,
according to the Federal Reserve. But
many cards come with a range of pos-
sible APRs, and the customers with
the strongest credit histories capture
the lowest rates.
Most credit cards have a variable
rate, typically composed of the prime
rate plus a “margin” of a set number of
percentage points. Each time the Fed-
eral Reserve changes the federal funds
rate, the prime rate moves in tandem.
In the second half of 2019, the Fed cut
rates three times, each cut one-fourth
of a percentage point. As a result, many
cardholders saw their APRs fall by
a total of 0.75 point. When a variable
APR changes because of an increase
or decrease in the underlying index,
the new rate applies both to existing
balances and new purchases.
By law, card issuers generally can’t
bump up your APR the first year you
have the card; after that, they have toprovide 45 days’ notice before raising
it. (Increases resulting from a rising
indexed rate or the expiration of a pro-
motional period don’t fall under those
rules.) Such hikes affect only new pur-
chases, not existing balances. If a bill
payment is 60 days late or more, the
issuer can raise the APR on your exist-
ing balance with 45 days’ notice. But
if you make timely payments for six
months following the increase, the
issuer must remove the penalty APR.Grace period. Most cards offer an
interest-free window on purchases
between the time a billing cycle ends
and the payment due date. The grace
period must last at least 21 days. If
you’re planning to make a large pur-
chase, consider doing so near the be-
ginning of the billing cycle—that gives
you nearly two months to pay it off
without interest. If you’re carrying
a balance from month to month, the
grace period disappears, and interest
accrues immediately on new purchases.Minimum payment. The minimum
monthly payment is often the greater
of 1% of the balance (plus interest and
fees) or some f lat amount—say, $25 or
$35. Paying only the minimum may re-
sult in thousands of dollars in interest
charges over time.Credit limit. Your credit history, your
income and the amount of credit avail-
able to you from other cards typically
help determine the cap on your total
balance. If you’re new to using a credit
card, the maximum may be only about
$500 to $1,000 at first, says Kimberly
Palmer, of personal-finance website
NerdWallet. Over time, your issuerCredit Card Confidential
Knowing your card’s mechanics can help you avoid high rates and fees. BY LISA GERSTNER
ILLUSTRATION BY IKER AYESTARANFUNDAMENTALS