People sometimes talk about 0% annual percentage rate credit cards like rare, mythical creatures — difficult to find and amazing in action. But the truth is, 0% APR credit cards generally follow the same rules as other credit cards. And by thinking otherwise, you risk ruining your credit and losing your 0% APR offer.
Here are the facts about how 0% APR credit cards really work:
Fact 1: If you don’t make the minimum payments, your 0% APR deal may be canceled.
Even with a 0% APR card, you’ll still have to make monthly minimum payments — usually a small percentage of your balance. And if your payments are even a single day late, your credit card issuer may cancel your 0% APR offer, and you could be stuck paying a higher interest rate.
On top of a higher APR and late fees, missing payments could ding your FICO score, because 35% of your score is derived from your payment history. If making timely payments is a challenge for you, consider setting up auto-pay on your account so you don’t have to worry about losing that no-interest offer.
Fact 2: Some of the card’s APRs may not be 0%.
The credit card offer you’re looking at may read “0% APR” in big, bold letters — but that’s likely referring to the APR only on purchases. To find out how much you’ll pay in other situations, you’ll have to read what’s known as the Schumer box, a black-and-white table typically included in credit card offers. These are a few of the different APRs sometimes listed in the Schumer box that may not be covered by a 0% APR offer:
Balance transfer APR: If you transfer a balance from another card to a 0% APR card, you’ll typically have to pay a separate interest rate on that in addition to a balance transfer fee.
Cash advance APR: Generally, you have to pay a much higher APR for cash advances than other types of transactions, along with a fee.
Penalty APR: If your good credit card habits fall by the wayside, you might find yourself stuck with a sky-high penalty APR. Actions that might trigger this include making no minimum payment within 60 days, exceeding your credit limit or making a payment that doesn’t go through.
And remember, if you’re late on payments or max out your credit card, high interest rates aren’t your only concern — your credit score may also take a big hit.
Fact 3: A high credit utilization ratio may still hurt your credit score.
No matter what promotional deal you got on your new credit card, the rules remain the same — the amount of money you owe still accounts for 30% of your FICO score. If your credit utilization ratio, or the percentage of your credit limit you use, is too high, your FICO score may go down. FICO recommends using less than 30% of your credit limit on any card.
Charging a lot of expensive purchases in a short period of time? Consider making multiple payments each month to keep your credit utilization ratio low and avoid maxing out your credit card.
Fact 4: You will be charged interest if you don’t pay off your balance before the clock runs out.
Like an enchanted carriage turning into a pumpkin at midnight, your 0% purchase APR will turn into regular APR after the promotional period ends. And when your time’s up (often, anywhere from six to 21 months after opening the account), your credit card issuer isn’t obligated to remind you to pay off your debt. If you’re still carrying a balance on your card, you’ll start accruing interest on it. That could be costly, because many cards charge a double-digit ongoing rate.
Before swiping your 0% APR card for the first time, it’s a good idea to set a calendar reminder noting when that promotional APR period ends. Aim to pay off your balance by that date to avoid finance charges altogether.
Fact 5: The usefulness of a 0% deal depends on your spending habits and rewards preferences.
If you pay off your credit cards in full every month, 0% APR offers probably don’t seem that magical. That’s because if you never carry a balance, you probably won’t end up paying any interest, anyway. Unless you’re planning on making some large purchases and paying off your balance over several months, consider looking for other rewards offers you can use, like airline miles or cash back on groceries or gas.
The next step
When venturing into the land of 0% purchase APR, don’t buy into all to fairytales — arm yourself with the facts and make the moves that are right for you. Long after the promotional period ends, your excellent credit report may become the stuff of legend.
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