When you sign a credit agreement, you agree to pay back some or all of the borrowed money, or principal, sometime between the date when your bill is calculated and the date it’s due. This grace period usually lasts between 21 and 30 days.

If you don’t pay back the full principal within the grace period, you’ll have to pay the creditor a finance charge. For credit cards, this charge is the interest that accumulates on any unpaid balance, calculated as a percentage of the amount you owe. Certain creditors calculate this charge using a fixed interest rate, which stays the same throughout the loan or credit agreement. Other creditors calculate this charge using a variable interest rate, which changes as market interest rates change. You can compare what the cost of credit would be on different cards by comparing the annual percentage rate (APR). That’s the annual interest rate you pay on the amount of money you owe the credit card company.

Creditors may also charge you a number of fees — for late payments, uses of credit over your limit, or administrative services. If you're careful about choosing a card and using credit wisely, you can avoid having to pay fees in addition to your finance charges.