New to credit cards and got some questions

zzzt

I've never really understood credit cards. I've always only paid for things that I can afford, and if I couldn't afford something I saved up until I had the money for it and then used my money to buy it. The idea of buying something when I didn't have the money wouldn't occur to me, and I don't like the idea of being charged interest.

But I am curious about them. Everyone seems to have one and I'm wondering if there's any way I could benefit from one or if it's worth having one. What I definitely don't want is to end up paying more, so if I have to pay interest then there's no point as far as I can see. But I see a lot of them offer 0% interest and even a proportion of your cashback on purchases.

I don't understand most of the stuff they offer because I've never used one.

My questions:

1) If it says "x days interest free if you settle your balance in full by the due date," then does this mean x days after you get the card and then never again? If so, is it worth getting a credit card just to use it for those days? I could put my money into savings and let the bank pay for my purchases, but interest on savings accounts seems pretty bad so it hardly seems worth it.

2) If there is no annual fee and you are not paying interest and you get 0.25% cashback on purchases, what is the drawback? How does the bank benefit from this?

3) If there is no annual fee, is it worth having a credit card "just in case", even if I don't use it? For example, if I'm suddenly hit by a big cost I would at least have credit instantly available to me.

4) Would any of these things harm my credit rating? I heard that people who always pay on time get bad credit ratings because banks can't make money off them. Is this true?

withnell

1) Up to x days interest (normally in the range 40-55)

If your statement month was 1st Jan - 31st Jan, and payment due 14th Feb, then any transactions made in Jan would have no interest charged if repaid by 14th Feb

2) Credit card companies make a fee from the retailer for all transactions processed.

3) That works as long as you'd have the money to pay it off by the time the payment was due. Probably best to continue with a similar philosophy to what you have at the moment, just using a card for the cashback benefits (which is what I do)

4) Absolute rubbish. I've never paid a penny in interest or charges, and I have no problem getting new cards

grumbler

zzzt wrote: »

1) If it says "x days interest free if you settle your balance in full by the due date," then does this mean x days after you get the card and then never again? If so, is it worth getting a credit card just to use it for those days? I could put my money into savings and let the bank pay for my purchases, but interest on savings accounts seems pretty bad so it hardly seems worth it.

Normally it is up to 50-something days interest-free period on all purchases that you make if you pay each statement in full and in time. Each new statement is issued every month and you have 20-something days to pay it - that's why it's 50-something days for the earliest purchases and about 20 days for the latest. This goes on indefinitely.

Also, there can be some special introductory offers like N months 0% on purchases.

2) If there is no annual fee and you are not paying interest and you get 0.25% cashback on purchases, what is the drawback? How does the bank benefit from this?

They charge merchants for CC transactions. And cashback can be much bigger than 0.25% - see the blue links above

3) If there is no annual fee, is it worth having a credit card "just in case", even if I don't use it? For example, if I'm suddenly hit by a big cost I would at least have credit instantly available to me.

It is worth having at least one for everyday spending. Many people have more than one as they offer various benefits, e.g. for foreign currency transactions.
Cheap Travel Money: Top cards for spending abroad
Also, for big(ish) purchases you get extra protection if you pay by a CC.

4) Would any of these things harm my credit rating? I heard that people who always pay on time get bad credit ratings because banks can't make money off them. Is this true?

I don't think so. People without credit cards have very thin credit history and have more serious problems with credit rating.

zzzt

Thanks for the replies. I think I might get a credit card then.

Just to confirm:

grumbler wrote: »

Normally it is 50-something days interest-free period on all purchases that you make if you pay each statement in full and in time. Each new statement is issued every month and you have 20-something days to pay it - that's why it's 50-something days for the earliest purchases and about 20 days for the latest. This goes on indefinitely.

If I've understood correctly, you buy things with your credit card and at the end of a month you get a statement saying how much you've used and they ask you to pay it off. If you pay it off within 50-something days of that statement then you don't pay any extra?

And during those 50-something days you have started a new month and can continue using the credit card, and at the end of that month you'll have another 50-something days to pay that month off?

Gromitt

Ignore the "You have upto 50 days interest free". You'll get confused.

Buy stuff on your card, pay it off by the due date.

If you happen to buy something on your statement date, then you'll have until the due date on the NEXT statement (ie, the statement it'll appear on) to pay for it. So, upto 50 days, but if you buy something the day before your statement is printed, you might only have 21 days of interest free, for that particular purchase.

You'll basically have 20 days from your statement date until the due date. Easiest way to pay is via direct debit, then you can forget about payment dates and just buy stuff.

grumbler

zzzt wrote: »

Thanks for the replies. I think I might get a credit card then.

Just to confirm:

If I've understood correctly, you buy things with your credit card and at the end of a month you get a statement saying how much you've used and they ask you to pay it off. If you pay it off within 50-something days of that statement then you don't pay any extra?

Correct, but 50-something days is from the start of the billing month. You have 20-something days to pay the statement after it is issued. You can do this automatically by a DD that is IMO the most convenient way of doing this.

And during those 50-something days you have started a new month and can continue using the credit card, and at the end of that month you'll have another 50-something days to pay that month off?

You keep using the card providing that you stay within your credit limit. If it is small you can make extra payments before the due date.

davec1960

zzzt wrote: »

Thanks for the replies. I think I might get a credit card then.

Just to confirm:

If I've understood correctly, you buy things with your credit card and at the end of a month you get a statement saying how much you've used and they ask you to pay it off. If you pay it off within 50-something days of that statement then you don't pay any extra?

And during those 50-something days you have started a new month and can continue using the credit card, and at the end of that month you'll have another 50-something days to pay that month off?

No you haven't got it quite right. The statement will have a date on it that the CC company has to receive payment by to avoid interest. This is typically a couple of weeks after the statement, for example my Barclaycard has a statement date around the 13th of the month with payment being due usually on the 28th.

UsetheFORCE

zzzt wrote: »

Thanks for the replies. I think I might get a credit card then.

Just to confirm:

If I've understood correctly, you buy things with your credit card and at the end of a month you get a statement saying how much you've used and they ask you to pay it off. If you pay it off within 50-something days of that statement then you don't pay any extra?

And during those 50-something days you have started a new month and can continue using the credit card, and at the end of that month you'll have another 50-something days to pay that month off?

No, if you purchase something the day after your statement is issued, you then have until the due date printed on the following statement. This would give you upto 8 weeks to pay for the transaction, a transaction 2 weeks later would need to be paid in 6 weeks time....

You will get upto 4 weeks to pay the balance in FULL on your statement provided you paid off the last statement in FULL and have not got any Cash transactions on your account. This is in order to avoid interest being charged.