Interest rates are something that goes hand in hand with having a credit card. In a word, interest is simply the profit to the credit card company. Thinking about it from that perspective means that you are thinking about getting the lowest interest rate possible.
When you are just staring out, it’s quite possible to get a very low interest credit card. The credit card company knows that you’re eager to get started, so they can at least offer you a teaser rate. Make sure that if you are going to take on a credit card when you’re still young, you really want to avoid the high interest rates as much as possible. In addition, you want to make sure that you’re not utilizing your entire card. This is a classic mistake that many people make, and it ends up biting them squarely on the rear later on.
If you spend all the way up to your credit card limit, you give the company the impression that you’re about to stop paying and stick them with all of the bills, or that you’re going to end up causing other problems. You just need to make sure that you handle your share of the credit card. Aim for using less than 30% of the total card. Now, we know that isn’t a whole lot, especially on a small card but it’s well worth your time to be cautious.
Need some math? OK!
You need to know the interest rate that you’re working with. For a new person, an interest rate of 9.9% APR isn’t too bad.
You need to divide 9.9% by 365 days:
(0.099 / 365) * 100 = 0.0271% (we really want the daily interest rate, hence the additional step here)
This means that any day that you carry a balance on your credit card, you’re going to be charged .0271% for the privilege of doing so. That can really add up over time, which is why you really want to manage those balances as much as possible.
With the power of compounding on the side of the credit card company here, you can actually have more interest than what’s advertised. That’s why it’s so critical to really knowing your credit inside and out. That will ultimately keep you on the right track.