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5 things you should know about credit cards

Carrying a balance on your credit card can prove costly. Pay your bill on time.

  • January 25, 2016  
  • |  
  • UPDATED   17:08 IST
Credit cards
Photo: Images Bazaar

I missed the credit card payment deadline by just five days. How could the company charge me so much interest?" We have all faced this problem some time or the other. What do we do when we get an unreasonably high bill? We frantically make calls and end up shouting at the customer care executive. But mostly, we do not understand where the problem lies. This is a mistake. We must know what the real issue is so that we don't end up committing the same mistake again. Here are a few myths surrounding credit cards:

Interest is calculated from the due date
People ignore the payment date of their credit card bill thinking the interest charged won't be very high if they miss it by a day or two. You are wrong.

Reality If you miss a payment, the interest amount is calculated from the date of purchase.

You can save on interest by paying the 'minimum due amount'

By paying the minimum due amount, you just save on late fees.

Reality Do not think 'minimum due amount' is a good reason for delaying your payments as the company still charges you interest for the period. It, however, doesn't impact your credit score as you are not termed as a defaulter.

Unpaid balance does not impact fresh purchases

You missed the last payment on your credit card. You make a fresh purchase on your card thinking you won't miss the payment this time. When the bill comes, you are surprised to see that the interest charged does not add up.

Reality Trailing interest is something not many understand. But it could cost you dearly. This is because if you had not made full payment as per your previous balance on your card, the interest is calculated from the day one of your purchase. Grace period ceases to exist for fresh payments if the payment is not made on your card.

Part payment saves you interest cost

If you think by making a partial payment you will save on interest, then you are wrong. Part-payment only helps in reducing the burden of paying the full amount next time.

Reality Interest is calculated on the full amount even after making a partial payment. "If you spend Rs 1,000 and you pay a partial amount, interest would be charged on Rs 1,000 for that period," says Gaurav Wadhwan, co-founder, Credit Sudhaar.

It is not important to know your credit cycle

It is not that you get a interest-free period of just 20-30 days on your card. The interest-free period can be extended to up to 50-60 days if you wisely time your purchase.

Reality Know the date when your credit card bill is generated. By making a purchase on that date, you can increase the interest-free period by almost two months.