Credit Card Basics Understanding Five Main Credit Card Terms
Below is a MRR and PLR article in category Finance -> subcategory Credit.
Understanding Credit Card Basics: Five Key Terms
Credit cards might seem straightforward: as long as your balance stays below your credit limit, you can purchase items without immediate payment. But there's more to it. Here's a closer look at five essential credit card terms.
What Is Interest?
Interest is essentially a fee you pay for borrowing money. When you use a credit card, you're spending the bank’s money, and interest is the cost of doing so.
What Are Interest Rates and APR?
Interest rates determine how much you'll pay for using your credit card. Expressed as a percentage, the Annual Percentage Rate (APR) represents the yearly cost of borrowing. A lower APR means less interest on what you owe.
Why Choose a High-Interest Card?
Most don't willingly opt for high-interest rates. Typically, banks assign rates based on your creditworthiness, assessed through your bill payment history. A solid track record can earn you better rates. However, some might choose higher-rate cards for the rewards or perks they offer, which can sometimes outweigh the extra costs.
What Is an Outstanding Balance?
Your outstanding balance is the total amount you owe on your card. Credit card companies calculate interest based on the 'average daily balance' for the month. For example, if you maintain a $50 balance for 20 days and then make a $400 purchase, your interest is on the average between $50 (for 20 days) and $450 (for 10 days).
Understanding Minimum Payments
The minimum payment is the smallest amount your credit card issuer will accept to keep your account in good standing. Paying only the minimum helps avoid delinquency, but it barely reduces your debt. It's wise to pay more than the minimum and aim to settle your balance monthly to avoid extra interest.
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By mastering these terms, you'll be better equipped to manage your credit cards effectively. Remember, responsible use is key to maintaining good financial health. Feel free to share this article, ensuring the author bio and links remain intact.
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