Credit Card 101: Understanding Interest Rates, Fees, and Terms- Your Ultimate Guide to Responsible Credit Card Usage

APR represents the yearly interest rate charged on the outstanding balance of a credit card. It is expressed as a percentage.

• APR will be shown

Scenario:

• Credit Card APR: 18%

• Balance: $1,000

• Minimum Payment: $50 per month

How APR Works:

1. Monthly Interest Rate: APR is typically expressed as an annual rate, but credit card companies usually calculate interest monthly. To find the monthly interest rate, you divide the APR by 12 (the number of months in a year).

monthly interest rate = 18%/12 =0.015 = 1.5%

2. Interest on Unpaid Balance: If you carry a balance of $1,000 from month to month, interest is charged on that balance.

So, in the first month, if you carry the $1,000 balance without paying it off, you’ll be charged $15 interest

The grace period is the period during which you can pay off your credit card balance without incurring any interest charges. It usually starts from the statement date and ends on the payment due date.

1. Typical Duration: The grace period is usually around 21 to 25 days, depending on the credit card issuer.

2. Interest-Free: If you pay your entire balance by the due date during the grace period, you won’t incur any interest charges on the purchases made during that billing cycle.

3. Effect of Carrying a Balance: If you don’t pay off your balance in full, or if you’re carrying a balance from previous months, you typically won’t have a grace period on new purchases. Interest will start accruing immediately.

“4. Cash Advances and Balance transfers: not covered by GP interest occurs instantly

The credit limit is the maximum amount of credit available on your credit card. It represents the cap on your spending, and exceeding this limit may result in additional fees or declined transactions.

Your credit limit is determined by the income amount you tell the lender you make per year.

credit limits can be negotiated and raised naturally by good spending habits, change in income, or by calling your lender and increasing your limit if need be.

The minimum payment is the smallest amount you must pay each month to keep your credit card account in good standing. It is typically a percentage of your outstanding balance.

1. Higher Balance: More purchases increase the balance, raising the minimum payment.

2. Interest Rate Hike: A higher interest rate means a higher payment.

3. Added Fees: Late fees or other charges increase the payment.

4. End of Promo Rate: When a promotional interest rate ends, the payment may go up.

5. Calculation Change: The card issuer changes how they calculate the minimum payment.

6. New Debts: Balance transfers or cash advances increase the balance.

7. Debt Program: Enrolling in a repayment program can raise the payment.

A balance transfer involves moving existing credit card debt from one card to another, usually with a lower interest rate. It can help consolidate debt and save on interest payments.

Consequently, while a Balance transfer does not directly hurt your credit score, several factors related to it can.

Your credit score is a numerical representation of your creditworthiness. It is influenced by factors such as payment history, credit utilization, length of credit history, and more. A higher credit score indicates better creditworthiness.

Credit scores typically range between 300 and 850, although the specific ranges may vary depending on the credit scoring model used.

A cash advance is when you withdraw cash from your credit card. It typically incurs high-interest rates, transaction fees, and may not have a grace period, making it an expensive way to obtain cash.

Therefore, avoidance of this is possible through the use of a debit card instead of your credit card.

The statement balance is the total amount you owe on your credit card at the end of a billing cycle. It includes purchases, fees, and any interest accrued during that period.

Your statement balance can transfer over to the next months billing cycle if you only pay the minimum. This will result in interest being charged to the remaining balance, and reflected in the next statement balance.

If you fail to make at least the minimum payment by the due date, a late payment fee may be charged. It is essential to pay on time to avoid this fee and negative impacts on your credit score.

A late payment fee can also result in your bank manager contacting you to talk about your future business with the bank/issuer.

This fee is charged when you make purchases in a foreign currency or outside your home country. It is usually a percentage of the transaction amount and can add to the cost of international purchases.

Similarly to avoiding Cash Advance fees, there are numerous ways to avoid these charges.

Foreign transaction fees can be avoided, if your card issuer states in the cards benefits, whether or not the card charges a transaction fee in other countries. Most do, but some of the higher end ones do not.