Is This How It Works?

supermanjo

How pathetic of me.

I've owned credit cards for years and still haven't understood the basics, but I think I got it and want to confirm if it is the way it works. (pathetic... don't abuse me. lol.)

EXAMPLE:

I use my credit card between the 1st of January to the 31st of January and run up say £450. On the 1st of February my statement is produced for January letting me know I have until the 31st of February to make payment.

Now, between the 1st of February and the 30th of February I run up another £500 totaling £950.

If I where to pay £450 in on the 30th of February basically clearing January's statement, do I end up paying any interest?

On the 1st of March I then receive my February statement giving me till the end of March to pay. Do I pay any interest on this?

So to recap... If you clear your previous months statement before its final due date, you pay zero interest?

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Before you guys ask, the way I "thought" it worked was - at the end of the month you had to pay off what you ow before you're statement is produced in order to not pay any interest. So like an idiot I kept phoning up my credit card asking how much I owed so I will pay it in before my statement is produced.

lol

Tixy

You got it. Pay each month in full between the statement date and the due date and you pay no interest

(assuming you don't use your card for withdrawing cash or other transactions that are treated as cash - such as gambling /foreign currency).

supermanjo

Well do I feel stupid.

Thanks Tixy!

supermanjo

Tixy,

While we are on the subject of credit cards. I have a question about 0% purchase cards.

Say I take out a Tesco card with 0% on purchases for 16 months, and say they give me a limit of £3,000. I then purchase something for £2,995.

How would the repayments work? Do I leave it completely for 16 months or would they fix a minimum payment per month for 16 months? If so, would that simply be the sum owed divided by 16 months? Or something silly like £10?

Sorry, for all the questions.

CLAPTON

you would need to pay the minimum monthly payment: these differ from card to card but are often around 2% of the balance

Tixy

Each month you'd need to pay the minimum payment - thats usually the higher of something like £25 or 2.5% of the balance (though that varies from card to card, not sure what tesco is).

So maybe a minimum payment of something like £75 on those sort of amounts. Then you either try to pay off in full in the 16th month, or they start charging you interest on the remainder balance.

jo-bo

Everything spot on apart from there are only 28 days in february unless it's a leap year :rotfl:

morganedge

I know a lot less that you! I've never actually had one, although I think maybe I should get one as I think i must have zero credit history.

So, as long as I pay back what i've spent in full each month, i'm not charged and I build a rating?

What about APR? Some cards say, like , 30% rep APR. I read that sort of thing and imagine I'll be paying lots of interest and then decide against getting a card, lol.

Tixy

morganedge wrote: »

I know a lot less that you! I've never actually had one, although I think maybe I should get one as I think i must have zero credit history.

So, as long as I pay back what i've spent in full each month, i'm not charged and I build a rating?

What about APR? Some cards say, like , 30% rep APR. I read that sort of thing and imagine I'll be paying lots of interest and then decide against getting a card, lol.

If you always pay in full on time each month then the APR is effectively irrelevant - as yes you pay no interest.

In terms of building a credit history - make sure you pay after the statement is generated each month, not before - as with some cards if you pay too early its reported that you haven't used any credit.

supermanjo

morganedge wrote: »

So, as long as I pay back what i've spent in full each month, i'm not charged and I build a rating?

Lol you just put yourself in the same boat as me.

NO, that is obviously not the way it works (for the better anyway) just like Tixy pointed out.

If you buy a bunch of stuff in January, you won't have to pay it back till late February. Read my example from post #1.

welshone27

Could I also please ask a question? I have never had a credit card before, I've applied for a vanquis card and have been accepted. Just waiting for it to come through. I'll be spending on it each month and clearing it in full.

Say for example I owe £200 by 28th October. I pay this on the 20th October. Will I then have to wait until after the 28th before I can spend on it? As in if I spend on it before the 28th will it look like I've not made the payment.

Does that even make sense?lol.