Credit Cards
Solutions
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Credit
Card Basics
Credit cards are easy, right? You have a credit limit. As long as your balance isn't as high as your credit limit, you can pay for things with your credit card. When you pay for something with your credit card, you don't have to pay for it until later. You pay interest on your credit card balance and as long as you don't go over your credit limit, everything's fine. Well, not quite. Here are some of the most frequently asked questions about credit cards - and their answers, of course. What's interest?
What's this about
'interest rates' and percentages? |
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Okay - so why would anyone choose a credit card with a high interest rate? Most
people don't CHOOSE to pay a high interest rate. The bank decides what
interest rate it will charge you, usually based on how much of a 'credit
risk' you are. They determine that by looking at your history of paying
bills. If you've got a history of paying bills on time, then you'll qualify
for lower interest rates.
If you haven't ever had any bills to pay, or if you've had trouble paying your bills, that will show in your credit history, too. Since it's a little riskier to lend you money, banks will charge a higher interest rate. |
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My card says that I pay interest on the 'outstanding balance'. What does that mean? Your outstanding balance is the amount that you owe altogether on your credit card. Credit card companies generally calculate what's called an 'average daily balance' for each month and base your interest charge on that. If you had a $50 balance from the first of the month to the twentieth, then charged a $400 computer, your interest will be computed on the average between 20 days at $50 and 10 days at $450. What's the 'minimum payment'? As long as I pay that, I'm fine, right? The minimum payment is the lowest amount that the credit card issuer will accept toward your balance. It varies from month to month, depending on your balance. Paying JUST the minimum balance may keep your credit card active and keep the credit card company from reporting your account as delinquent, but it will barely make a dent in the amount you owe. Whenever possible, you should pay more than the minimum amount. In fact, it's best to try to pay off your balance in full each month to avoid paying interest charges. Additional References: |
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