topic Re: Question abou interest in Credit Cards

Question abou interest

Anonymous — Tue, 19 Nov 2013 01:06:45 GMT

Hi everybody, I'm new to the forum and ive found very important information about credit card and credit in general.
I 've tried looking for the answer of my question , but had noluck.
My question is: I used $43.00 on gas with my discover, and I only paid $ 40.00
I have a 13.99% APR, do I get interest for the $ 43 or only the $ 3.00 that i didn't pay?
Thanks so much for the answers

Re: Question abou interest

FinStar — Tue, 19 Nov 2013 01:12:41 GMT

@Anonymous wrote:
Hi everybody, I'm new to the forum and ive found very important information about credit card and credit in general.
I 've tried looking for the answer of my question , but had noluck.
My question is: I used $43.00 on gas with my discover, and I only paid $ 40.00
I have a 13.99% APR, do I get interest for the $ 43 or only the $ 3.00 that i didn't pay?
Thanks so much for the answers

Interest will be assessed on your average daily balance (including new transactions). Did your statement already cycle or generate?

Re: Question abou interest

Anonymous — Tue, 19 Nov 2013 01:15:39 GMT

Actually it did , it became available today.
So, from what I understand the sooner I pay those 40, the less interest on average daily balance I will incurre right??

Re: Question abou interest

FinStar — Tue, 19 Nov 2013 01:20:23 GMT

@Anonymous wrote:
Actually it did , it became available today.
So, from what I understand the sooner I pay those 40, the less interest on average daily balance I will incurre right??

Correct, otherwise the further out the balance is carried, the more it tends to compound on a daily basis - granted it may be nominal, but if you want to avoid as much as possible.

Re: Question abou interest

Anonymous — Tue, 19 Nov 2013 01:22:27 GMT

Thanks!!!, is so easy to understand when simple words are used

Re: Question abou interest

Walt_K — Tue, 19 Nov 2013 02:04:13 GMT

Is this a real example, or are you just trying to understand how interest is calculated? I'm asking because I'm curious why you would pay all but $3. If it is because you've been told you need to leave a small balance for utilization purposes, remember that is for reporting only. You still want to pay in full before your due date.

Your post may have nothing to do with that, and I may be reading too much into it. But you only have a few posts, so I wanted to make sure you weren't paying interest for no reason. It's a common misunderstanding for new members that they believe they are supposed to carry a small balance.

Re: Question abou interest

Anonymous — Tue, 19 Nov 2013 02:13:52 GMT

Thanks for the response Walt!
It's in fact both : a real example, and also I really want to understand better how interest is calculated
And yes I want it for reporting purposes, I've been trying to improve my credit. over the past 8 monts.
And I've read is a good practice stay under the 10% of my credit limit., others say under 30%.
To have a better idea, the limit on that discover is $1250 so I think carry a balance under $ 125 would be a good idea right?
Sorry if the questions sound too simple, but like I said I started to actually have credit again 8 months ago.

Re: Question abou interest

Walt_K — Tue, 19 Nov 2013 02:33:49 GMT

@Anonymous wrote:
Thanks for the response Walt!
It's in fact both : a real example, and also I really want to understand better how interest is calculated
And yes I want it for reporting purposes, I've been trying to improve my credit. over the past 8 monts.
And I've read is a good practice stay under the 10% of my credit limit., others say under 30%.
To have a better idea, the limit on that discover is $1250 so I think carry a balance under $ 125 would be a good idea right?
Sorry if the questions sound too simple, but like I said I started to actually have credit again 8 months ago.

When people are talking about optimizing your utilization to better your score, they are talking about reported utilization.

Most cards report your statement balance. What you want is for all cards to report $0 except for one card. For that one card, you want it to report 9% (not 10%) or less of that card's credit limit (not 9% or less of your total CL across all cards). These are general guidelines. The sweet spot will be different for all people, but generally this seems to work best.

So, in your case, with a CL of $1250, you would want $112 or less to report. That means, you want to pay your balance down before your bill is generated so that your balance on your bill is less than $112. But then you pay the bill in full before your bill is due. That way your CC reports the balance on your bill to the CRA and you show some utilization, but you pay the bill before the due date and avoid any interest. You don't carry that $112 balance.

Also, remember that your score is determined by running the information for an individual report through an algorithm. You do not "earn" points for maintaining good utilization. You get a score based on the information that is currently on your report. So if you were to mistime things one month and let a little too much report, it is no big deal. The next month, your score will completely recover for utilization purposes if you pay the card back down.