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Frequently Asked Questions Importance of Credit

How to Be a Responsible Credit Card Holder

September 9, 2016

Getting a credit card for the first time can be exciting and nerve-racking. You may have questions like: Should I pay the minimum balance on the statement, or the entire balance? What happens if I miss a payment? What is APR anyway? How does my credit card use impact my credit score?

You likely have many questions our team members have heard before from other customers when they first received their credit cards. That’s why we decided to create this handy guide for first-time credit card holders. Become a smarter credit card user! Read important information you need to know about your new credit card.

When should I use my credit card?

In today’s world, it seems like credit cards are accepted most everywhere – coffee shops, department stores, grocery stores, and gas stations, just to name a few! While it’s up to you to decide when to use your credit card, remember, it’s best to treat your credit card like cash. Spend the money you know you’ll have in your bank account by the time your credit card bill is due

What is APR?

APR stands for annual percentage rate. Essentially, it’s your interest rate or the amount you pay for borrowing money. The APR is a monthly interest charge on purchases, cash advances, and fees assessed.

How your APR or interest is determined will vary. In addition, credit card companies may vary as to when you start accruing interest and what your rate will be for various transaction types. With most credit cards, you have a grace period for purchases where if you pay your statement balance in full, you won’t have to pay interest.

The required minimum number of days for a grace period is 21 (if the card has a grace period). However, many issuers give you between 25-28 days; the exact number of days for the grace period is disclosed with your credit card. If you get a balance transfer or a cash advance, you may start accruing interest right away, meaning you won’t get a grace period like with purchases. Always review your credit card terms before opening a credit card. If you have questions, or something is unclear, call the credit card issuer.

Once you decide not to pay your balance in full by your payment due date, your grace period ends, and you will start accruing interest. This means the interest will add up over time. To regain your grace period, you must pay off your entire credit card balance. Some credit card companies may require you to maintain a $0 balance for a set period of time. Read your terms and conditions or call the company to find out. Getting a $0 balance can be tricky, according to the MyFICO blog, because of trailing interest. Why? The time between the date your statement was issued and when you pay it, more interest may have added up on your credit card balance. To avoid trailing interest, pay your balance online or by phone, so you know your current balance.

What happens if I don’t pay my entire credit card balance every month?

Most credit cards have a grace period, where interest does not accrue on purchases. Say you buy a pair of athletic shoes for $100, and that’s all you have on your credit card. If you don’t pay off the $100 by your statement’s due date, you’ll be charged interest. Those shoes now cost you more than the $100 because you’re paying interest, similar to a cash loan. This interest is charged for all purchases if you don’t pay your monthly statement amount in full each month. Interest is accrued for outstanding balances, so the more you owe on your statement to the credit card company, the more interest is charged.

What happens if I don’t pay my credit card bill by the due date?

Pay at least the minimum amount due by your due date. If you’re mailing a payment, review the physical location where you are mailing your check, and plan for the appropriate mailing time for your payment. Payments usually need to be received on or before the due date. If you think it’s too late to mail in a payment, call your credit card company to pay by phone or see if there is an online bill-pay option. Ask how to set up online access when you open your credit card so you’re not caught without an online payment option.

If you don’t pay your bill on time, a few things may happen:

  • You could be charged a late fee.
  • Additional interest may accrue on your unpaid balance.
  • Your creditor may report your late payment history to the consumer reporting agencies.  This may impact your credit history and affect your ability to secure other lines of credit in the future, whether it’s another credit card or a loan for a home or vehicle.

If you cannot afford your minimum payment, don’t ignore the problem. Consumer Financial Protection Bureau says to:

  • Budget, and look for ways to cut expenses so you can make your minimum payment.
  • If that doesn’t work, call your credit card company and explain your situation. Also, let them know how much you can pay them and when you can start making minimum payments again.
  • Finally, you may wish to seek assistance from a non-profit credit counseling service. These organizations can help you learn how to manage your finances. Just be sure to ask about fees and what’s included with services before you begin.

What happens if I max out my card?

If you reach your maximum credit limit, your credit card may be declined if you try to make additional purchases.

Also, if possible, keep your balance lower than your credit limit allows, meaning don’t max out the card limit every month. High utilization may hurt your credit score. Also, remember, you have to pay back every penny you spend.

How can I get a credit limit increase?

Do you want a credit limit increase? If the answer is yes, you’ll need to inquire with your credit card provider. Not all companies automatically give them. To get an increase, you’ll likely need good credit history, not just with your credit card company, but with all creditors. Your debt-to-income ratio and length of time the account has been open are also some of many factors that a company may consider in determining whether or not to grant a credit limit increase.

What should I do if I lose my card?

So, the phone number is on the back of your credit card, now what do you do if your card is lost? If you haven’t done so yet, write down the phone number from the back of the credit card, and keep it in a secure place. That way, if something happens, you’ll know who to call.

If you lost your credit card, didn’t write down information, and don’t have previous statements to refer back to, visit you credit card provider’s website to find the phone number to report lost or stolen cards. Make sure you have the correct website and phone number, as you want to be careful about sharing your personal information over the phone. Make sure you’re speaking with the actual credit card company.

What if I get my statement and there are purchases on it that I didn’t make?

First off, reviewing each statement to make sure the purchases are valid is extremely important. If you see something that doesn’t look right, such as a purchase that you didn’t make, call the number on the back of your credit card right away. Your credit card number may have been stolen.

Reporting your credit card as lost or stolen right away will prevent a thief from racking up additional charges. You will most likely not be responsible for fraudulent charges that are reported in a timely manner. You may also wish to update your online shopping accounts in case this is how your card number was compromised. Change your passwords and add your new credit card information once a new account number is issued to you.

On a final note, do not let others use your card, or give out your PIN. You will be responsible for these charges.

 

Have other questions about your new credit card?

We’re happy to help you find the answers you need. If you have questions about the First PREMIER Bank credit card, visit our help center. If you’re looking for general assistance, the Federal Trade Commission and Consumer Financial Protection Bureau have great resources to help credit card holders understand every aspect of credit.

 

 

This information is presented for educational purposes only. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

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