Using Credit Cards Wisely

Girl holding credit card

Credit cards have become an everyday tool that many people use to manage their personal finances and make purchases. They also enable individuals and families to obtain goods and services, deal with emergencies, and build a credit history for larger purchases such as a car or home. Today, over 70 percent of all families have at least one credit card. While they can be a useful financial tool, it’s important to use them wisely.

Below are answers to some common questions about credit cards, as well as a list of credit card tips you should keep in mind.

What is an Annual Percentage Rate (APR)?

For credit cards, the Annual Percentage Rate or APR is basically the interest rate. The APR is applied to your balance to calculate the interest you owe. The dollar amount of interest you owe is shown as a finance charge on your billing statement for any month you are charged interest.

What is the grace period on purchases?

Most credit cards give you the chance to avoid interest on purchases (in effect, an interest-free loan) if you pay your credit card bill in full by the due date. This is called the grace period on purchases. The grace period is the period between the date of the purchase and the due date. To get it, you usually must pay your bill in full every month. When the grace period does not apply to purchases, you will pay interest on the purchases from the date of the transaction. Most credit cards do not give you a grace period on cash advances and balance transfers. 

What happens to the grace period if you paid in full one month and the following month you do not pay in full?

If you do not pay in full one month, you will lose the grace period. Typically, you will owe interest from the first day of the billing period in which you did not pay in full. This means that if you paid in full in January, but only paid part of the bill in February, you will pay interest from the first day of February based on the full average daily balance for the February billing period when your bill arrives in March.

What if I only pay the minimum amount due?

If you consistently pay only the minimum on your credit card, it will take you a long time to pay off the balance. You may end up paying a lot of interest. The amount of interest will depend on your APR and the amount of your balance. Pay as much as you can, as soon as you can, and always pay by the due date.

 What if I do not pay on time?

 If you do not pay at least the minimum amount due, credit cards will charge a late fee. Paying late may also cause your APRs to increase.

How do I know what my credit limit is?

Your credit limit will be stated when you first get your card. Over time, based on your needs, usage, and qualifications, the limit may change. Your current credit limit appears on your billing statement each month.

What happens if I go over my credit limit?

If you go over your credit limit, you may have to pay a fee. In addition, your APRs may increase. Be aware that you may go over your credit limit even if the transaction is authorized. So keep track of your transactions and how close you are to your limit.

A few final tips…

  • Pay as much as you can, as soon as you can, and always pay by the due date. If you do not pay your balance in full, pay the remainder off as soon as you can; do not wait for the due date.
  • Keep track of your balance by checking it online or by phone.
  • To avoid paying your bill late, schedule automatic payments online, mail payments at least one week before the due date or pay by phone.

If you have credit card questions or are interested in signing up for a card, please contact your American Federal Banker or apply online