I just got my first credit card, and I'm not sure if I understand how it works.

Here is my understanding. If it is relevant, I am an American.

I buy something with my credit card. Then, after I have purchased some items, e.g., a football, gas, snacks, and a sim card for my computer, which amounts to, say $80, I then owe the credit card company that much money back plus interest.

So, at the end of the month, I will receive a bill(?) showing how much money I own (so, $80 plus the interest rate(?)), and I then pay that much money, and that is good. Correct?

Am I missing something?

  • You should almost certainly also set up automatic payments to avoid forgetting. – chrylis -cautiouslyoptimistic- Mar 12 '18 at 1:41
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    @GµårÐïåñ Unfortunately, this kind of thing isn't taught in American schools, at least reliably enough for "you should already know how it works" to be accurate. It's a massive problem with our school system, and not one that seems likely to be fixed soon. – Fund Monica's Lawsuit Mar 12 '18 at 6:10
  • @NicHartley This is interesting because I think GµårÐïåñ saying "This is basic economics" applies mostly to the US - credit cards are most popular there, so it's the US where they should teach it, if anywhere (as a European, I'm not familiar with the details of credit cards, I don't know what a credit score is, but I don't feel that I "should already be aware of how it works" either) – molnarm Mar 12 '18 at 14:47
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    @GµårÐïåñ While I agree that people should take it upon themselves to learn this, it's not that schools gloss over it -- it's that schools literally never mention it. They don't even mention taxes, or credit cards, or loans, or anything that would be relevant for managing finances, except (in my case, at least) as parts of a word problem. Expecting people to know that these problems exist is like expecting them to deal with their termite problem when the inspector didn't tell them they have one. I only learned what I know of this because my dad taught me, and not everyone has that. – Fund Monica's Lawsuit Mar 12 '18 at 21:27

You're basically right, but if you pay it all off when you receive your bill at the end of the month then you don't pay any interest. Interest only starts to be added after the first bill when the payment was due.

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    So, just to clarify, and hopefully not annoy you: I make so many purchases in a month, and then they send me a bill, I pay that bill in full on-time and then I do not receive interest rates. That should be very good for me then because I always pay on-time. I thought it would be trickier. And paying my bills on time means that I have a 0 balance? – user31078 Mar 11 '18 at 20:21
  • Yes, that’s right. – Mike Scott Mar 11 '18 at 20:22
  • @user31078 , you typically get 20 days to pay the bill. that‘s easy to do, especially if you use online banking. – Aganju Mar 11 '18 at 23:41
  • @user31078: No, you won't have a zero balance (assuming you keep using the card), you will just not have paid interest. You buy stuff: on the closing date - which can be any day of the month, not necessarily the 1st - your purchases to date are added up. That's the amount due on the due date, which is about 3 weeks later. Meanwhile, you may have made other purchases, which won't be due until the next month. The company's web site should tell you the exact date, and may even send you an email reminder a few days before. – jamesqf Mar 12 '18 at 1:36
  • @MikeScott I think it's worth noting that the specific details -- what date your purchases are added up, interest rates, when you're expected to pay, etc -- are all outlined in the contract, which you should really read. It might be implicit to some people, but it's worth explicitly mentioning if only to remind people. – Fund Monica's Lawsuit Mar 12 '18 at 21:29

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