Credit Cards Explained
How Credit Cards Work
Credit cards provide a revolving line of credit with a predetermined limit. You can spend up to that limit, repay some or all of it, and borrow again. Unlike loans, there is no fixed repayment schedule—only a minimum monthly payment requirement. Interest accrues on outstanding balances, with rates typically higher than personal loans.
Interest Calculations
Interest is calculated daily on your outstanding balance and added to your account monthly. If you pay your balance in full each month, most cards offer an interest-free period on purchases. Cash advances and balance transfers often have different rates and usually start accruing interest immediately without a grace period.
Fees and Charges
Common credit card fees include annual membership fees, cash advance fees (typically a percentage plus a flat fee), balance transfer fees, foreign transaction fees, late payment charges, and over-limit fees. These can significantly increase the cost of using credit cards if not managed carefully.
Responsible Usage
Credit cards are convenient but require discipline. Always pay at least the minimum payment to avoid penalties, ideally pay in full to avoid interest, and keep utilisation (balance vs limit ratio) below 30% to maintain a healthy credit profile. Monitor statements regularly for unauthorised charges and report suspicious activity promptly.