Important Things to Understand About Your Credit Card
One of the easiest ways to establish and build your credit score is with a credit card. As long as you don’t exceed your credit limit, pay your bill each month, and stay within your budget, you’re on the right track to financial stability.
But what if you’re new to the world of credit? How do you know if you’re using your card responsibly?
We’ve come up with a list of some of the most common questions that new credit users have to help you get familiar with your card.
What is a Minimum Payment?
At the end of each billing cycle, you receive a statement that lists how much debt you’ve accrued over the period. It also lists a minimum payment. The minimum payment is the lowest amount of your bill that you can pay back to your bank. If you pay less than that amount, then your payment is considered late.
Let’s say your statement says you owe $100.00 and your minimum payment is $10.00. Even though you still owe the bank the full $100.00 eventually, so long as you pay at least $10.00 for that month your account won’t become delinquent (which occurs when you miss a payment by more than 30 days)
What is an Interest Rate?
There are, of course, major downsides to only making the minimum payment on your credit card and they come in the form of increased debt thanks to interest. Interest is additional money your bank tacks on to how you much you owe according to how long you take to pay back the money you’ve borrowed from them in full. The interest that accrues on your account is determined by your interest rate. The standard interest rate for most Canadian credit card holders in good standing is 19.9%. This means that even if you make the minimum $10.00 payment on your $100.00 bill, you’ll still be charged an extra 19.9% for the remaining $90.00 you have yet to pay. The longer you keep on making only the minimum payments, the more the interest increases and the larger your debt grows.
This is why you should avoid making only the minimum payments unless you have absolutely no other choice.
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