Contents

How to use a credit card

1. Pay for things using the credit card
2. Set aside money to pay the credit card each time you use it
3. Pay the statement balance by due date

What happens when you use a credit card

1. Pay for items (charge)
2. Cost of items are added to the current balance
3. The current balance can never exceed the credit limit
4. On the statement date, the current balance becomes the statement balance
5. The statement balance must be paid by the payment due date
6. Any portion of the unpaid statement balance is subject to interest after the due date

Best Practices

1. Pay statement balance when due every month, preferably on auto-pay
2. Know your statement and payment due dates
3. Using your credit card does not build credit. Paying without incurring fees builds credit.

Basic Glossary

• Statement: a detailed summary of the charges, payments and credits to your account that have occurred since the last statement date
• Statement date: the cut-off date for transactions that are included on the statement, usually comes a few days after payment due date
• Statement balance: amount you owe the day of statement date
• Minimum payment: amount that must be paid by the due date. Failure to pay this amount can result in late fees and negative marks on your credit file.
• Payment due date: date that minimum payment is due (see late payment fee). Pay the full statement balance by this date to avoid interest charges.
• Remaining statement balance: statement balance minus any payments that have been made since the statement date

Extended Glossary

• Credit limit: Maximum amount of money that can be charged to your account at any given time.
• Minimum payment: the amount that must be paid by statement date to avoid late fees and negative marks on your credit report. If interest is charged, the minimum payment will include those charges.
• Late payment fee: a fee charged on the next statement if the minimum payment is not paid by the due date
• APR: annual percentage rate used to determine how much interest is charged
• Cash advance: a cash withdrawal from your account. There is usually a per-transaction fee, either a small percentage or a flat fee. Interest accumulation begins immediately until the cash advance amount is paid.
• Balance transfer: a cash advance that goes directly to pay off a balance on your account with another creditor.
• Annual fee: Yearly cost of having a premium credit card. Cards that have annual fees usually offer services, benefits, coupons, etc. that will offset the cost.
• Auto-payment: payment is made automatically each month before the due date from your bank account. Payment options are usually:
  • minimum payment
  • statement balance
  • amount you specify
• Grace period: the time between statement date and payment due date when no interest is charged for charges made during that time. The grace period often is only valid after the statement balance is paid on the due date.

Notes on Interest

• You will never have to pay interest if you always pay your statement balance by the due date.
• Monthly interest can be roughly calculated by multiplying the current balance by your APR and dividing by 12. Example: a $1200 balance with 20% interest would cost $20 every month.
• There are separate APR’s for cash advances and purchases. Cash advances usually have a higher APR than purchases and often incur interest immediately with no grace period.
• Sometimes credit cards will have an introductory APR of 0% that will be in effect for a specific amount of time, usually measured in months. If the balance is not paid by the end of the introductory period, the entire balance can be subject to interest including interest charged retrospectively.
• Cash advances and balance transfers are sometimes offered with a 0% introductory APR but a one-time fee is charged. Your credit card company may send you checks in the mail that can be used for this purpose. You should shred them immediately.

Advantages

1. Cash back/rewards
2. Can spend during low cash flow
3. Fraud protection
4. Travel benefits

Disadvantages

1. Misuse leads to excessive interest
2. The Float: a false sense of security based on bank balances

Benefits (in progress)

Some benefits are common across cards. Premium benefits are usually available on cards with a membership fee.

Statement Credits

You charge a thing and receive reimbursement for it on your next statement.

• Travel: reimbursement for common travel expenses like hotel stays, ride sharing, airline incidentals (baggage, seat assignments, etc), and expedited airport security (TSA pre-check).
• Category credits: utilities, streaming, restaurants
• Service credits: delivery services
• Vendors: Saks, Dell
• Services: Lyft, Uber, Walmart+, DoorDash, Instacart

Travel

• Access to member travel booking portals
• Enhanced status for hotels and airlines
• Foreign transaction fees waived
• Insurance: car rental, trip delay, trip cancellation, trip interruption, luggage
• Free night certificates: offered by co-branded hotel cards like Marriott, Hilton, Wyndham
• Free checked bag: offered by co-branded airline cards
• Airport lounge access

Non-travel Protections

• Purchase protection
• Return protection
• Extended warranty
• Cell phone protection

Rewards

Rewards are complicated.