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Maximizing Your Credit Card: A User’s Manual

6 min

Credit cards play an integral role and have become the norm for people to make their daily lives convenient.

From daily groceries to apparel shopping, credit cards are preferred by almost all individuals.

People use this every day but do not know everything about how a credit card works.

● The interest of the credit card, how to efficiently use one, and its impact on your credit score are often misinterpreted.

● If you don’t know how to properly utilize your credit card, you can jeopardize your financial situation and your credit score.

Let’s take a peek into the workings of a credit card.

Working on a Credit Card’s Interest Rate

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If you own a credit card, you must know the interest of the credit card and how the interest is calculated.

● It is integral to know because the functionality of a credit card’s interest is different than other forms of lending, such as a line of credit or a personal loan.

● A credit card’s interest is a compound interest, unlike other forms of credit.

● The remaining balance of the previous day is required to calculate your monthly interest.

A monthly interest charge is generated using these amounts.

After this calculation, you must pay this amount every month plus your remaining principal amount.

● The compound interest rate is a bit tricky to deal with. If a person cannot utilize a credit card’s potential well, he can land in a debt spiral which is hard to come out of.

● Paying off a credit card becomes difficult due to the compound interest factor.

Focus only on paying the minimum balance, and you might end up thinking it is impossible to deal with.

● The ideal way to pay off your credit card debt is by making frequent payments on time and paying more than the minimum balance.

● An increase of only $50 above your minimum balance on your payment date will benefit your financial life.

It is the fastest way to pay your principal amount efficiently.

Working of Credit Card Payments

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Another integral aspect that a credit card holder must know is how credit card payments work.

● It must be known because they help you pay your debt faster and more efficiently.

You must know about the credit card balance.

● A credit card is a form of borrowing from a lender or financial institution until you pay the debt on time.

● You must time your payments because you will attract a penalty and interest that you have to pay along with the remaining balance and the remaining principal amount.

This credit card balance is not what you borrowed, you have to pay any incurred interest and any fees associated with using a credit card.

It is important to pay your remaining debt because it is a part of your payment history, and it will blemish it and degrade your credit score.

● Your minimum payment does not cover your principal balance.

Whenever you receive your credit card statement, you must try to pay it.

There are different options to pay for your credit card due:

  1. Using rewards to make payments.
  2. Depositing cash to your bank.
  3. Paying an online bill to your credit card account.

Types of Credit Cards

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Various types of credit cards serve different financial needs.

● You must choose a credit card that suits your financial needs.

Credit cards are of two categories:

  1. Secured Credit Cards: These are for building credit.
  2. Unsecured Credit Cards: These offer a flexible line of credit.

Some credit cards are:

1. Student credit cards.

2. Low-interest credit cards.

3. No-fee credit cards.

4. Rewards credit cards

5. Travel credit cards.

6. Business credit cards.

7. Balance transfer credit cards.

Balance transfer, low-interest, and rewards credit cards have a minimum credit score requirement as well as some minimum income requirements.

You must fulfill those requirements to use these credit cards.

A student credit card is for students till graduation.

You can use a travel credit card when traveling and business cards are only for people that own a business and fulfill some minimum requirements.

A no-fee credit card is most popular for first-time credit card users and provides some additional rewards.   

Cash Advance Rates

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If you use credit card cheques or withdraw money from an ATM instead of using a credit card for a standard transaction, you will be charged with an added percentage.

● This rate is usually 2% – 3% higher than standard interest rates.

The financial institution or your credit card issuer doesn’t offer a grace period on a cash advance, so you will get charged the amount until you repay your full debt.

Advantages of Using Credit Cards

● It can increase your credit score if you utilize it well.

● You can earn rewards when paying for a transaction or overall.

● You get different perks from different credit cards.

Disadvantages of Using Credit Cards

● A compound interest can make it difficult to bear the expenses of a credit card.

● Overspending is common in credit cards and you can end up in a debt trap.

● It is hard to pay the total amount in full every month.


Credit cards have made our everyday lives more convenient. If you strategize your credit card expenses, you can lead a financially stable and successful life.

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