Key takeaways

• U.S. credit card balances reached $1.23 trillion in September

• Balance transfers may reduce interest temporarily but require careful timing

• Late fees average about $32 and can affect payment history on credit reports

Credit cards can be a valuable and essential tool to manage money. Understanding core credit terms can help people consider steps that fit their financial situation.

Americans held $1.23 trillion in credit card balances at the end of September, according to the Federal Reserve Bank of New York , a jump of $24 billion over the previous quarter.¹ Shifts in U.S. tariffs and the job market have brought credit card debt into the economic spotlight, especially as consumers continue to spend into the holiday season.

Empower research found that more than a third of people who carry a credit card balance (39%) say their debt keeps them awake at night — and a quarter have accumulated $10,000 or more.

As some 35% of people are motivated to improve their financial situation when they think about money, revisiting credit cards can be a great place to start. While each account’s setup can vary, understanding certain terms could help people get a better grip on their financial picture — and take action if they want to change their approach.

Credit term #1: Credit utilization

People can apply and get approved for one credit card or many, and accounts can be spread across a variety of financial institutions (like a local or online bank or credit union) or businesses (such as getting a store’s branded credit card). Thinking about credit overall is just as important as the individual bills, and tracking what you’ve saved and what you owe through financial tools can help people stay informed in real time.

A person’s credit score is made up of several factors, though credit utilization accounts for 30% of how a score is generated. Credit utilization is calculated by taking how much revolving credit is being used at a given time and dividing that by the total amount of credit available.  A card with a $10,000 limit and a $1,000 balance would have 10% credit utilization — but just for that single credit card. Since credit-scoring companies look at people’s financial situations on the whole, make sure to take account of all credit card debt.

The scene can change quickly if life is more complex: Expand the scenario to that same person who has $1,000 of debt on that one card — but now they have multiple cards. With a total credit limit of $50,000, if they’re using $25,000 already across all the cards, they now have a credit utilization ratio of 50%. It's generally recommended to keep credit utilization around 30% or less.

Read more: How to build credit

Credit term #2: Minimum payment

The cycle of credit cards centers around the combination of time and monthly statements. Financial institutions create a recap at the end of each credit cycle showing transactions, credits, fees, and interest accumulated since the last cycle; that’s the statement received each month electronically or through the mail. Some people focus a lot on the minimum payment that the account holder is required to make, though paying the minimum doesn’t mean the debt is done.

People may hear the terms “paying the minimum” and “paying in full,” which are two very different concepts when it comes to credit cards. It also means different downstream effects for your cash flow.

If a statement shows a total statement balance of $1,000 and a minimum payment of $40, a person could just pay the $40 and fulfill their monthly obligation to the card issuer. The remaining balance of $960 will stay on their account as debt, carry over into the next monthly cycle (or longer), and accumulate interest for however long it is not paid off. It could take months or years to pay off that $960, plus  interest, depending on how much money is paid into the account. As of August, the average interest rate for credit card accounts charging interest was 22.83%, according to the Federal Reserve.²

In comparison, paying that entire statement balance of $1,000 when due would avoid interest charges; you’ve paid just for what you’ve spent — as long as the full payment is reflected before the due date.

Read more: Strategies for dealing with credit card debt

Credit term #3: Balance transfer

The average American home gets 848 pieces of junk mail each year, and offers for new credit cards and related products are often in the mix.³ This happens because credit card companies look to get new customers by prescreening or prequalifying people for credit products, based on information they glean from credit reports.⁴ Promotions around balance transfer credit cards can catch attention, and it’s important to thoroughly assess offers before considering a move.

A balance transfer involves moving existing card debt onto a new credit card, which can often have a lower interest rate or even an introductory 0% period.⁵ People get the chance to pay no interest on their balance for a specific amount of time. For those who can pay off their balance within this time frame, this can be a welcome strategy to more quickly handle debt. However, if that’s not the case, interest rates can kick back in and the debt cycle continues.

Around 18% of people carrying a credit card balance have used a balance transfer to handle their debt, according to an Empower study.

Credit term #4: Late fees

Due dates are essential. They’re clearly listed on monthly statements, and credit card companies will let account holders set up reminders through email, text, or push notifications. Whether you’re making a minimum payment, paying a full statement balance, or somewhere in between, the money still needs to be applied to the account by the monthly due date. If not, issuers can charge a late fee (on top of the money you already owe), which averages around $32.⁶

In addition to avoiding potential late fees, timely payments are a signal to creditors about your ability to handle debt. On-time payments contribute to a person’s credit score, as do late payments in potentially negative ways. 

Credit term #5: Cosigners and authorized users

Having a credit card doesn’t have to be a solo financial decision. Parents have been increasingly adding young children and teens as authorized users onto existing credit accounts to try and boost their kids’ credit scores, while cosigners play a pivotal role for those looking to expand their access to credit. However, these added users contribute differently to the primary cardholder’s account.

Think of an authorized user as an additional spender; these people can get their own card on the same account and can spend from the pool of available credit. While they may benefit from the account in their credit report, authorized users are not legally responsible or “on the hook” to pay charges.⁷

Meanwhile, a cosigner applies alongside a person for joint legal responsibility of a credit card, using their income and credit information to help qualify. Unlike authorized users, the cosigner is required to make payments toward the account if the primary cardholder isn’t able to.⁸

Harnessing credit for the future

With a third of Americans saying they’re mostly cashless, credit cards are playing a larger role in people’s spending strategies.  With a third also saying they’re more likely to make impulse purchases with digital payments, according to Empower findings, it’s important to know the ins and outs of credit cards to stay in control for the long haul.

Frequently asked questions about credit cards

How do balance transfers work?

A balance transfer moves existing credit card debt to a new card, often with a temporary low or 0% introductory rate. If the balance is not paid off before the promotional period ends, regular interest rates resume.

Do late fees affect credit?

Late fees add to the amount owed and may signal payment-timing challenges to creditors. Because payment history is a key credit-score factor, repeated late payments can negatively affect credit reports.

What is the difference between a cosigner and an authorized user?

A cosigner shares legal responsibility for the credit card account, including required payments. An authorized user can make purchases but is not legally obligated to repay the balance, though account activity may appear on their credit report.

Can adding an authorized user help build credit?

If the primary account is managed responsibly, an authorized user may benefit from positive account information reported to their credit file. However, each issuer’s reporting practices can vary.