New to credit?

Question

Im new to this whole entire credit thing and it confuses me a lot! Im 20 and i decided to get a credit card to start building credit. I got a Sears mastercard one with a 300 dollar limit. It says that:

variable sears purchases APR- 20.24%

variable cash access APR - 24.49%

variable default APR - 29.99%

I dont know what any of this means. Im not irresponsible im very smart and I know that a bad credit history will ruin me financial. If anyone could be of some help and give me some tips id really appreciate it, and if you could give me some examples of how this credit thing worked would be great.

I know that w/e i buy i have to pay for but would I have to add the 20.24% to get the total balance that I owe?

Answer 1

The first APR (annual percentage rate) is for purchases.  When you make purchases you will have to pay 20.24% per year.  On a $1000 purchase, it comes to 1000 * 20.24% = $202.40/year or $16.87/month.  This is just the interest.  You will also have to pay some principle too.

Your cash access is if you take a cash advance.  For instance, you can go into a bank with your credit card and tell them you want to take out $1000 against your card.  You will usually have to pay a cash advance fee (generally 3% of the amount) plus that nasty interest rate.

The default APR is the rate you will pay if you default on your loan.  This means, for instance, if you make a late payment, go over your limit, etc.  It's a penalty and you will be forced to suffer with a 30% rate.  Take good care of your credit, and in a few years when your credit is awesome, you will look back at those rates and be shocked you ever paid them.  It's good you're getting it established.  Eventually you will have higher limits and much lower rates.

Answer 2

I would really say I commend you for being proactive in learning about credit and how it works, rather than just jumping right into it without any knowledge at all.  You should just read as much as you can on Yahoo answer,  Google, read books on credit , and money management, etc. Suze Orman, Stephen Snyder, and many other authors that are experts in their fields of credit.  All these questions can be answered by reading different material, going online, and asking banking institutions these questions.

Answer 3

The rates you mention are all interest rates charged on statement balances that you do not pay in full each month.  Note that interest does get charged on cash advances on the day you take the cash advance, even if you pay the full balance when the statement arrives.  Note that cash advances are not item purchases.

If you make purchases and do not pay the balance in full by the due date, this item purchases balance will be assessed interest at a rate of 20.24%.  The rate is variable, so the rate can go higher or lower at any time at the choice of the credit card issuer.

If you use your card to get cash (taking a cash advance) you will immediately begin being charged interest at a rate of 24.49%.  This rate is variable so it too can go higher or lower at any time.

If you fail to make at least the minimum payment shown on your monthly statement (could be as little as $10 even if your statement balance is $300) by the payment due date, the credit card company can increase the interest rate on your entire outstanding balance to 29.99%, which also can go higher or lower at anytime.  You will also be charged a late fee.

For any additional questions, please read the terms booklet that came with your credit card.  You can also call the credit card issuer if the booklet does not answer your questions.

Lastly, the interest rates tied to this card are high, likely because you have not established a credit history.  After six months or a year of using and paying on this credit card, look for better rates from other issuers.  Do not be fooled by low introductory rates.  You need to know what the rate will be after the introductory period is over.  The best bet is to never pay interest.  But it is always good to have one or two credit cards with lower interest rates at hand, just in case you need to make a large purchase that you can not pay off in one month.

Answer 4

It looks like it is saying that if you buy stuff from Sears the interest rate is 20.24%, if you withdraw cash on your card (ie. use it like an ATM card to just get a cash loan) your interest rate is 24.49%  And if you buy anything else on the card the interest rate is 29.99%.  These numbers are probably the closest thing to highway robbery you will encounter in your life.  I strongly advise you to pay the balance off in full every month and not to ever carry a balance.  That way you will never pay interest.

I hope the card has no fee.  If it does then look for another card with no fee and use that instead.  As long as you pay off the full balance it does not matter too much what the interest rate is.  If possible get a card that will automatically debit the balance from your bank account every month.  That way you will never run the risk of forgetting to mail a check or a check getting lost in the mail.  Obviously keep track of your card and bank balance and make sure you have enough cash to pay off the card.  Personally I would even reject a card that does not do automatic bank withdrawals but it is up to you if you want to take the risk of a payment being missed.

The longer you keep your card and more certain you are to never miss a payment the better your credit history will be.  Your longest running credit card has the most effect on your credit score so take good care of this one.  I am sure you are very smart but remember that banks issuing credit cards are also very smart and do their best to sucker people like you and me out of our money any way they can.  You are best off being vigilant and never giving them the opportunity.

And to your final question, once again, you will only have to pay off the exact amount you purchased *as long as you pay your balance off in full every month* by the bill date shown on your statement.  And you avoid the responsibility of having to track this if you get your card to withdraw the balance in full automatically.  That way any missed payment will be their fault.

Welcome to credit and I hope you deal with it a lot better than the average consumer.

Answer 5

The rates are not automatically added for what you've purchased, they're for the balance of any money that you owe AFTER the due date on the Sears bill.

If you made a $100 purchase and your balance is due July 15 and on the 15th you only made the minimum purchase, let's say $20 then the remaining $80 will attract the 20.24%.

This will continue every month until you pay the balance.

If you take cash from your card limit then from the day you make the withdrawl until the day the bill is due you will attract 24.49% interest. Any amount you don't pay after the due date may also get penalties and fees.

If you default which means you didn't pay at least the minimum amount by the due date then you'll pay the 29.99% because you defaulted (broke agreement) to pay.

It's great that you're trying to establish credit but that's a very small limit with very high interest rates. Appy for a student card (if applicable) and/or get a secured card at www.capitalone.ca/com so you can buy whatever you want not just at Sears