How credit cards work
Let’s take a look at how a credit card works.
Except for a few states Credit Card Company’s set their own interest rates, usually between 5-15% for those with good credit. Those rates are annual but they are compounded daily. That means at the end of every day the debt incurred on that credit card has interest added to it.
Let’s assume that you have a credit card that has a $100 balance and a 15% interest rate. 15% divided into 30 days is .005. So for day one your calculation is 100(1+.005). Your balance is now $100.5. So on and so forth for thirty days or until you buy more on credit. You can however avoid paying interest if you pay it all before your bill comes.
Look out for late fees; cash advance fees, over limit fees and annual fees. Try not to use cash advances, they have a much higher interest rate. That’s bad because card companies will always add your payment to the lowest interest debt; you’ll be paying interest on that advance until you pay your way to it.
Whats your score?
I want you to read and memorize this next sentence: Your credit score is the most important thing about you! Your credit score can save you a lot of money or it can cost you. Having good credit gives you some leverage as a buyer. You’ll get a lower interest rate and you can borrow more money. So what is a credit score and how is it measured?
The break down
Record of paying bills on time 35%
Your debt to credit ratio 30%
Length of history 15%
New accounts and recent applications 10%
Other credit cards and loans 10%
The next question is, how do you improve your credit score? Well do what matters most; pay your bills on time. Always pay something, even if it’s just the minimum. While your paying on time your also (hopefully) paying down the balance and improving your ratio. You want to shoot for about 50% but 25% is great.
Whats on your credit report?
When you make a payment on any type of debt the institution that issued the debt will report that payment to one of three credit bureaus: Equifax, Experian and TransUnion. Each bureau gets different information; for example your cellphone provider may report to Equifax and your credit card company may report to TransUnion. Everyone is entitled to one free report per year from each bureau.
Just call 877-322-8228 or go to annualcreditreport.com.
Its very important to check your reports to make sure that all of your payments are being reported. Also make sure that the things being reported are true, if you find a problem fix it. Otherwise it could cost you.
If you find a mistake file a dispute with that credit bureau, its the fastest way.