See the order in which your credit card repayments are applied so that you can make sure you're using your credit card effectively. Your credit card balance may be made up of transactions such as purchases, cash advances and balance transfers.
Each of these may attract a different interest rate. So, where does your repayment go to first? If you have multiple plans, we apply payments to plans in order of highest to lowest interest rate, or if all plan interest rates are the same, from oldest to newest. If this arrangement no longer suits you, you may cancel your plan at any time. Credit providers in Australia, such as CommBank, apply your repayment to the debt with the highest interest rate as at the statement date first — unless you have made an agreement otherwise, for instance if you have set up an instalment plan.
Pros of credit cards. Easy to carry, easy to use — credit cards are accepted at more places than charge cards and prepaid cards. Safer than cash — if your card is lost or stolen, just call your bank and cancel it. However, some cards offer an initial interest free period on purchases. So if you book a holiday and the provider goes out of business, the card company should cover the cost even if you only paid an initial deposit by card.
Read more in our guide How chargeback and section 75 protection work for your credit and debit card. Freebies — these often come with credit cards, such as air miles, reward points and cashback. Find out more in our guide Cashback credit cards. Can help your credit score — sticking to your credit limit and paying your credit card balance in full each month can improve your credit rating.
But missing even a single payment will damage your credit record. Cons of credit cards. This can be a lot more than other forms of borrowing. Beware the debt spiral — miss just one payment and the interest will start to add up.
Can damage your credit score — if you miss a payment or go over your credit limit you can severely damage your credit score.
This can affect your ability to borrow money in the future. Additional fees — as well as the interest, you could find yourself paying extra fees or penalties for exceeding your credit limit, or missing a payment. You will usually have to pay a higher rate of interest for withdrawing cash and some credit cards may also charge an annual or monthly fee.
Deposits and pre-authorisations can cut into your credit limit — some places, such as, hotels or car rental firms might use your credit card to take a pre-authorisation. Expensive to use abroad — this very much depends on the card. Some are designed for travellers; others are more expensive when it comes to fees and other charges. This depends on whether you use the card for purchases or cash withdrawals. Shop around to find the best rate cards to use abroad. Charges and fees.
Be careful how you use your credit card. There are all kinds of ways you can incur charges. Watch out for interest rates. Fees for transferring to another card. Late payments damage your credit rating.
Minimum credit card payments can get out of control. Monthly repayment. Total interest. Total cost. Time taken to clear balance. Table scroll. Cash withdrawals cost money. Credit and debit cards work differently at cash machines. Credit card cheques come with fees. Need someone to talk to about your finances? Was this information useful? Yes No. Thank you for your feedback. Share this article. Email Facebook Twitter. More options. Share this with. WhatsApp LinkedIn. Explore this topic Close Types of credit.
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The balance includes the principal how much you charged, took out as a cash advance or transferred to the card and the interest accrued that month based on the principal and any fees. So, how do you have more than one interest rate on the same credit card?
This happens when one credit card has different annual percentage rates, or APRs, for different types of transactions, such as new purchases, balance transfers and cash advances.
The minimum payment itself typically goes to the balance with the lowest interest rate, because issuers want to make as much money off of the higher interest rates as possible. Check the fine print for an explanation of how your specific issuer applies minimum payments. Otherwise, the credit card company is required to apply the two payments before the delayed interest period ends to the delayed interest balance, in their entirety.
If you think your credit card company is not applying your credit card payments correctly, contact them first to log your complaint. If the issuer does not change their payment practice, you can file a complaint with the Consumer Financial Protection Bureau online. The bureau, charged with safeguarding consumers when it comes to financial products, will act as a mediator for your complaint.
It will forward your complaint to the card-issuing bank and monitor how long it takes for the bank to resolve the issue.
Good luck! Find credit cards for excellent credit at Bankrate. Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter. Follow Janna Herron on Twitter. The content is broad in scope and does not consider your personal financial situation.
Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. How We Make Money. They would often apply these payments to the balance with the lowest interest rate, which meant higher interest rate balances would decrease slowly and incur more interest. As a result, many credit card holders were paying more interest, taking longer to pay off their balances, and not receiving the benefit of a low-interest rate promotion.
Payment allocation rules only apply to consumer credit cards, not business credit cards. Creditors must apply any credit card payment above the minimum to balances with the highest interest rate. The minimum payment, however, can be and typically is applied to the balance with the lowest interest rate, which will usually include balances with a promotional interest rate.
When you have balances with different interest rates, you have to pay more than the minimum to reduce your higher rate balance.
If you only pay the minimum, your higher rate balance might not decrease at all. In fact, when finance charges are added, that particular balance might go up.
The payment allocation rule doesn't specify how credit card issuers should split up payments when purchases and balance transfer balances have the same interest rate. You can avoid payment allocation confusion by not mixing balances with different interest rates on your credit card, especially if you can't afford to pay more than the minimum payment. That means avoiding balance transfers to credit cards that already have a purchases balance or making purchases on a credit card with a balance transfer.
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