Credit Card Interest Rates
August 21st, 2008 | by admin |
If you apply for and are accepted for a credit card, you will have to deal with credit card interest rates. A credit card’s interest rate is how card issuers – the people or organization giving you the card and credit – earn their revenue. When a person uses a credit card, they borrow money. While the money is borrowed, the organization, usually a bank, charges the cardholder an interest rate that can accrue or build over time.
The interest rate is paid because the cardholder is able to spend money they may not currently have (i.e. they don’t have to wait to save the money to make an important or emergency purchase). In today’s day and age, credit cards are commonplace.
Credit card interest rates help protect the card issuer. When dealing with credit cards, there is always the risk that the money borrowed will not be paid back. Thus, the interest rate gives issuers like banks some security. An interest rate is calculated by looking into an individual’s credit history.
When a person applies for a credit card, the card issuing bank will check national and international credit bureau records to see what the person’s borrowing history is like. These records tell the bank if the individual has outstanding debts, if they’ve opened credit cards in the past, and how many credit cards they currently have, among other things.
Every person has a credit score that is determined from the average debts a person has and if they are up-to-date on these accounts. If a person misses many payments, has experienced bankruptcy, or is delinquent on one or more accounts, his or her credit score will be low. Generally, the better a person’s credit score, the lower his or her credit card interest rates will be. If a person has a bad credit score, it means the card issuers need to protect themselves because they are at a greater risk for giving this person a credit card.
People who are new to credit – i.e. people without a credit history – will also typically have higher interest rates. This is because they have not proven themselves to be reliable or unreliable when it comes to paying off debt. Thus, student credit cards are typically high in credit card interest rates.
Credit card interest rates are how card issuers make they’re money, but the amount of money depends on the cardholder. If they pay off their credit cards in full as soon as possible, less interest will accrue. However, if person waits and only pays the card’s minimum required payment, interest will keep accruing, so much so that a $10 charge can end up costing a person three times as much, if not more.
When it comes to credit cards, it’s recommended that the individual pay as much on the card as possible. This will save the person money in the end. It’s highly recommended that you pay off your card each month so that you don’t end up paying more for your purchases than you would if you had cash on hand.
When it comes to credit cards and their interest rates, it helps to shop around. What one bank offers a person may not be what another bank offers him or her, and it’s important to apply to a variety of card issuers before deciding on the right card for you.