1. Know How Credit Card Companies Calculate Interest
One thing that many first-time credit card users don’t realize is that credit card companies charge interest in a way unlike other types of bills. What seems like a very low-interest credit card at first can actually cost a lot more than you think if you aren’t careful. Here’s what you need to know: if you have a balance on your credit card, you are accruing interest every single day until your next payment on the average daily balance.
That means that even if you pay off a significant portion of your debt throughout the month, the APR is still being recalculated every day based on the average of your balance from that billing period. In effect, you are paying interest on the balance you’ve held since the last time you paid off the card in full, not just what is currently owed. The only way to avoid paying unnecessary interest is to always pay the card off in full when you use it.
2. Know How Credit Card Use Impacts Your Credit Score
No matter if you are applying for low interest or an interest-free credit card, all lines of credit have an impact on your credit score – and it may not be calculated in the way that you think. Most consumers who have never had a credit card before believe that just making timely payments will mean that their credit score is going up, and that’s all there is to it. But the fact is that having a credit card, using that credit card, and paying that credit card bill, will all impact your credit score. There are five main ways that a credit card has an impact on your FICO score:
- How much of your available credit you are using at any given time
- How long you’ve had the line of credit
- How many different types of credit you are using
- Your payment history
- How many new lines of credit you have
Overall, how much of your credit you are using, and your payment history, have the biggest impact on your score.
3. Know Your Legal Rights – and the Rights of the Creditor
Many first-time credit card users don’t realize that the credit card company has lenient rights to change the terms of an agreement at any time. For example, your fees, grace period, and more importantly, your low-interest rate, could change. Creditors are required to give you a notice via mail, so don’t ignore letters from your credit card company. The low-interest rate that made you want the card in the first place could be a thing of the past without you even realizing it till your next bill comes around.
You also have legal rights as a credit card user, however. Laws require that a creditor explain things to you in a way that you can understand, and you have the ability to dispute errors through a court of law. Be sure to pay close attention to a credit card agreement, and use your card wisely, to have the best experience with a low-interest credit card.