Credit cards are a form of revolving credit, which means you have a credit limit that you can borrow from, and you pay back what you owe, either in full or over time. Here’s what you need to understand about how they work
Interest Rates (APR):
Interest rates on credit cards vary, and they play a key role in determining how much you pay when carrying a balance. If you don’t pay off your balance in full each month, the outstanding amount will accrue interest, typically at a high rate. This is why it’s important to understand your card’s APR before using it.
Credit Limits:
Your credit limit is the maximum amount you can borrow on your card. It’s important to stay well below this limit to avoid exceeding it and to maintain a healthy credit utilization ratio (the amount of credit you use relative to your limit). For example, if your credit limit is $5,000, aim to use no more than $1,500 to maintain a good credit score.
Billing Cycles and Payments:
Your credit card operates on a billing cycle, typically 30 days, after which you will receive a statement. This statement will show the total amount you owe, including any purchases, interest, and fees. To avoid interest charges, you need to make your payment by the due date, ideally paying off your balance in full. If you only make the minimum payment, interest will be applied to the remaining balance.
