Newbie Questions..

djpailo

So I understand that when you get your card statements, you are told how much you need to pay. You can pay in full or pay in minimum. Lets say you spent £100 on your credit card. Does paying a minimum mean like pay £20 now, and the rest £80, pay later? Presumably paying in full is simply £100. Okay, so some questions from this example:

1) If you pay in full, by say DD, how do you actually set up the payment. You may not know exactly how much you plan to spend, so does this mean you have to change your DD every month? Is there any bank that just takes the required amount from your current account automatically, if you let it?

2) Provided you pay in full within the "grace" period after your statement, I presume you don't have to pay with any interest. So you need to pay £100, no interest is applied? Does this mean paying minimum always means you'll have to pay some money on interest?

I plan to use the credit card just to build up credit history. So I'll be only using it to pay for lunch/ coffee etc over the month.

3) Is this a wise strategy, or would it be better to just use the credit card to pay GiffGaff phone bill and then knowingly have a fixed amount to pay off each month?

4) Just to check, do these statement periods last a month or can they last longer? I presume you can get paperless too?

Mummyto4kids

djpailo wrote: »

So I understand that when you get your card statements, you are told how much you need to pay. You can pay in full or pay in minimum. Lets say you spent £100 on your credit card. Does paying a minimum mean like pay £20 now, and the rest £80, pay later? Presumably paying in full is simply £100. Okay, so some questions from this example:

1) If you pay in full, by say DD, how do you actually set up the payment. You may not know exactly how much you plan to spend, so does this mean you have to change your DD every month? Is there any bank that just takes the required amount from your current account automatically, if you let it?


Your CC company will take the DD based on what you selected when you set it up - you can normally choose full balance or minimum payment which they will work out for you.

2) Provided you pay in full within the "grace" period after your statement, I presume you don't have to pay with any interest. So you need to pay £100, no interest is applied? Does this mean paying minimum always means you'll have to pay some money on interest?
It depends on whether you have a 0% deal on your card - if you don't then you need to clear it in full after every statement to avoid interest charges

I plan to use the credit card just to build up credit history. So I'll be only using it to pay for lunch/ coffee etc over the month.

3) Is this a wise strategy, or would it be better to just use the credit card to pay GiffGaff phone bill and then knowingly have a fixed amount to pay off each month?
As long as you wait until the statement comes out and then clear it then I don't think it makes a huge difference, although advice I have seen is to only use up to approx. 50% of the available credit?

4) Just to check, do these statement periods last a month or can they last longer? I presume you can get paperless too?

Usually a month - most providers offer online and paperless services, my Barclaycard and Capital One definitely do - you need to check who your card is with


Hope this helps

Marcio45

1) When you set up the DD with the credit card company (have you done it already?) and you choose the option of paying in full it is the credit card company job to get the money from your account and they adjust it every month depending on the full balance on your statement. Your job is to make sure you have enough money on your bank account for payment to be taken on the specific date they tell you. Also, if it is your first month, make sure you check if the DD gets set up on time for first payment or if you need to pay manually.

2) if you set up a DD for full amount they will always take it except if you tell them not to. So Yes, if you pay in full no interest is payable. You spend £100, you pay back £100. If you pay minimum in first month, then on the second statement interest will be payable and for every month that you dont make the full payment.

3) it is wise as long you have the money on your bank account to pay for it at the end of the month. With credit, it is easy to think that you have free money, but you have to pay it back (been there!!!). Variation on your spending every month shows regular use of your card and will probably help with limit increases in the future.

4) yep, statements come out every month but not exactly the same day. And payment due dates can change as well by a few days. If you get a small credit limit be carefull not to exceed it. Paperless is an option with most credit cards and some come out as default.

djpailo

Marcio45 wrote: »

1) When you set up the DD with the credit card company (have you done it already?) and you choose the option of paying in full it is the credit card company job to get the money from your account and they adjust it every month depending on the full balance on your statement. Your job is to make sure you have enough money on your bank account for payment to be taken on the specific date they tell you. Also, if it is your first month, make sure you check if the DD gets set up on time for first payment or if you need to pay manually.

2) if you set up a DD for full amount they will always take it except if you tell them not to. So Yes, if you pay in full no interest is payable. You spend £100, you pay back £100. If you pay minimum in first month, then on the second statement interest will be payable and for every month that you dont make the full payment.

3) it is wise as long you have the money on your bank account to pay for it at the end of the month. With credit, it is easy to think that you have free money, but you have to pay it back (been there!!!). Variation on your spending every month shows regular use of your card and will probably help with limit increases in the future.

4) yep, statements come out every month but not exactly the same day. And payment due dates can change as well by a few days. If you get a small credit limit be carefull not to exceed it. Paperless is an option with most credit cards and some come out as default.

Thanks, helped a lot. No, I haven't got a credit card yet. Bit worried about the DD part to be honest. I will definitely have the funds, that isn't an issue.

eDicky

djpailo wrote: »

Thanks, helped a lot. No, I haven't got a credit card yet. Bit worried about the DD part to be honest. I will definitely have the funds, that isn't an issue.

The DD makes it easy, don't worry. You would have to worry about remembering, to pay it manually. . .

Superscrooge

I get the impression from your original question that you might be slightly confused about the difference between a standing order and a direct debit.

With a Standing Order you are giving an instruction to your bank to make a regular payment to a person or organisation and you specify the amount to pay.

With a Direct Debit you are giving permission for the credit card company to collect money from your bank account to settle your credit card bill. So you don't specify the amount. They just collect either the minimum amount, or the full monthly balance, whichever you have authorised. It all happens automatically once you have authorised it. You don't have to change anything each month.

Borrowing on credit cards is expensive (unless you have been given an introductory 0% or low interest deal)
I recommend that you agree to pay the full balance by DD each month, then you never pay any interest charges and don't risk getting into debt.

The credit card company will always tell you on your monthly statement what the amount of the direct debit will be and it isn't collected from your bank account until about two weeks after the statement, so you always get plenty of time to ensure you have sufficient funds in your bank account

djpailo

Superscrooge wrote: »

I get the impression from your original question that you might be slightly confused about the difference between a standing order and a direct debit.

With a Standing Order you are giving an instruction to your bank to make a regular payment to a person or organisation and you specify the amount to pay.

With a Direct Debit you are giving permission for the credit card company to collect money from your bank account to settle your credit card bill. So you don't specify the amount. They just collect either the minimum amount, or the full monthly balance, whichever you have authorised. It all happens automatically once you have authorised it. You don't have to change anything each month.

Borrowing on credit cards is expensive (unless you have been given an introductory 0% or low interest deal)
I recommend that you agree to pay the full balance by DD each month, then you never pay any interest charges and don't risk getting into debt.

The credit card company will always tell you on your monthly statement what the amount of the direct debit will be and it isn't collected from your bank account until about two weeks after the statement, so you always get plenty of time to ensure you have sufficient funds in your bank account

Thanks, I think I was confused, your right. I understand it better now.

If I don't use the credit card, presumably no money is taken as well?

ceredigion

djpailo wrote: »

2) Provided you pay in full within the "grace" period after your statement, I presume you don't have to pay with any interest. So you need to pay £100, no interest is applied? Does this mean paying minimum always means you'll have to pay some money on interest?

That sort of depends, you will "always" get charged interest but the rate might be 0%, so in effect none to pay.


Just thought I would muddy the water's slightly.

Superscrooge

djpailo wrote: »

Thanks, I think I was confused, your right. I understand it better now.

If I don't use the credit card, presumably no money is taken as well?

If you haven't used the credit card that month and you paid the balance in full the previous month then your statement balance will be zero and no money will be taken.

If you only made the minimum payment the previous month then there will still be a balance on the card from the previous month and also an interest charge will have been added. That's why I recommended setting up a DD for the full amount then you never have to pay interest

than_prutt

djpailo wrote: »

I plan to use the credit card just to build up credit history. So I'll be only using it to pay for lunch/ coffee etc over the month.

3) Is this a wise strategy, or would it be better to just use the credit card to pay GiffGaff phone bill and then knowingly have a fixed amount to pay off each month?

All the more reason to pay your statement in full every month. Set up a DD so you don't forget. You can use your credit card for anything but make sure you don't go over the limit.