There are different terminologies used when denoting various types of functions of a credit card. When you visit any bank website, you will see different links for varied types of cards. Almost all of them would have a credit card apply online link that will inform you about all the benefits and features of that particular card. However, it will not give you any information about the different terminologies used in credit card bills and statements.
Some of them are as follows:
Credit card rate: This signifies the interest rate being charged on your card.
- Monthly payment: Denoting the monthly amount to be paid on the card, this is a certain percentage of the outstanding balance on the credit card.
- Minimum payment: Same as the monthly payment, this is calculated on your current outstanding balance. This is the minimum amount that you can pay on your card to keep it out of default payment list.
- Credit card balance: The current balance on your card.
- Total payments: Being calculated on the outstanding balance, this implies the payments you need to make in order to clear your balance with the help of minimum payments.
- Balance payoff: This clearly indicates the amount of time it will take you to pay off your balance with the help of minimum payments.
Among all these terms, one of the most intriguing and confusing ones is minimum payments and is also the most important for people who own credit cards.
Why should you always pay more than the minimum payment on credit cards?
Many people, who own credit cards, only pay the minimum payment every month in order to avoid late fees and other penalties. While it is easy to pay the minimum payment, it does cost a lot more in the long run. Some of the reasons for making payments more than the minimum due on credit cards are as follows:
- Finance charges: In case you pay just the minimum payment on your credit card, then in the long run it will cost more on the interest rate. Also, you will incur different finance charges for not clearing the actual balance on the card. By paying more than the minimum payment, you lower the interest rate in your future payments.
Longer time period for balance payoff: It takes longer than usual to pay off your balance on your credit card if you only pay the minimum amount. In order to keep your credit cards in a flow, it is advisable to pay more than the minimum payment mentioned in the statement. This way you can use it at the time when it is needed more.
- Your credit score: Only paying minimum payments will negatively affect your credit score. Minimum payments bring the balance down on your credit cards little by little, which eventually makes the balance higher than the limit on the card. This results in loosing some precious credit score points. If you pay more than the minimum payment on the monthly basis, your balance on the credit card will come down drastically, thereby increasing your credit score.
- Loan on credit card: There are many banks that provide loans on credit cards. You will only be able to qualify for this facility when you start paying more than the minimum payment as your present debt needs to be cleared before you borrow more.
- Your available credit: In order to keep your credit card accessible, it is imperative that you pay off more than the minimum payment. A fast decreasing balance ensures more available credit on your credit cards. As your card is useless without the available limit, it is essential to maintain a healthy and floating credit limit.
Credit cards are essential in a person’s life for many different reasons. There are places where only credit cards are accepted. Hence, it is always advisable to keep your card operational with better and prompt payments.