how to use your credit card

You're not using your credit card correctly, but we are going to fix that. When you are approved for a credit card, you are effectively approved for a short-term loan that the lender is willing to provide to you at any given moment in time. So every time you spend on that credit card, you are effectively borrowing portion of that limit or the full limit if you've maxed out your credit card every single month, which I probably wouldn't recommend. Each month you'll get a statement and your statement will show a number of things. So you'll probably see your full balance. This is the total of the credit limit that you've utilized, effectively how much you've spent on the card. You should also see a minimum payment. And this is typically around 1 to 3% of the full balance that you have utilized or a fixed amount, whichever is the higher of the two. This is the minimum amount that you need to make by the payment due date. Payment due date. So your payment due date is the deadline by which you need to make your minimum payment on your card without which you'll be penalized. Which brings me nicely onto your APR. APR most commonly stands for Annual Percentage Rate in finance, which is the yearly cost of borrowing money or earning on an investment. However, depending on the context, it can also refer to a prominent football club or a specific month. Barclays +2. Your APR is your annual percentage rate. And this is the annual cost of having your credit card, considering the interest rate and the fees attached with the card. Most standard credit cards will sit somewhere between 20 to 30% APR. You can see APR higher on certain cards. And the higher the APR, the more expensive that debt becomes if you're not clearing your balance on time. Most people think just making the minimum payment solves all your issues when it comes to a credit card. But if you don't understand how credit cards work, this is probably one of the most expensive mistakes that you can make and continue to make if you're doing it regularly. If you pay your credit card in full every single month, you're paying zero interest. That's happy days for you, not so much for your credit card provider because they actually profit from you making your payment in full. The card effectively becomes loan lender. Benefit. Perks. Credit. But actually, what happens when you actually minimum just payment. So let's just say in month one, you will credit card spend £2,000 on a credit card with a 24% APR. Making only £2,000 minus £25 (minimum payment) outstanding balance - £1,975. Interest (outstanding balance + (24% ÷ 12 = 2% per month)) x outstanding balance = £40. Month 2 balance - £1,975 + £40 = £2,015. Reminder. Your APR is calculated on an annual basis. The APR month to month basis feels considerably less. Which is why people won't really notice it until it starts to rack up in the background. And suddenly you're at a point where you don't understand accumulated interest. Month 1 - £40. Month 2 - +£40. Month 3 - +£41. Month 4 - +£41. Month 5 - +£41. Month 6 - +£42. Total - £245. Because the interest accumulating, it actually builds up to be something quite significant. And if you keep up that behavior of only making the minimum payment for months, that outstanding balance that you actually do have will continue to increase month after month and still all that interest is being applied in the background. What you want to be doing with your credit card is making the payment in full every single month. So you're not subjecting yourself to any amount of interest during the course of utilizing your credit. Echo. Credit. Maintaining. Utilisation. Great. It's great that you have a credit card, it's great that you're utilizing it responsibly. You're making your payments in full every single month. Happy days. However, with spending card in single the the pounds. The credit provider and credit rating agencies, you're quite reliant on the credit provider to you. The preferred rate of utilizing your credit is actually around 30%. So with a £2,000 spending limit, you actually want to be spending no more than £600. Which is why sometimes it's preferable to have a higher spending limit, knowing that you're going to use nowhere near that amount because the credit utilization signals credit agencies that you're able to utilize effectively. You're actually not relying without spend. Make every utilisation. Relatively 30%. Rule of thumb.