HOW CREDIT CARD WORKS
WHEN YOU SWIPE A DEBIT CARD, THE MONEY GETS DEDUCTED FROM YOUR BANK ACCOUNT.
CREDIT CARD LETS YOU BORROW FUNDS (USUALLY FROM BANKS) FOR A PRE – APPROVED LIMIT TO PAY FOR YOUR PURCHASES.
YOU ARE USING MONEY WHICH IS NOT YOURS BUT YOU WILL PAY LATER.
SUPPOSE YOU DO SHOPPING FROM 1STJULY TO 30TH JULY WITH YOUR CREDIT CARD.
DURING THIS PERIOD, ALL TRANSACTIONS DONE ON YOUR CREDIT CARD WILL SHOW UP IN YOUR MONTHLY CREDIT CARD STATEMENT.
SAY IT WILL SHOW ON 31ST JULY
THIS IS CALLED BILLING CYCLE.
TO PAY THE CREDIT CARD BILL, YOU GENERALLY GET A CREDIT FREE PERIOD OF 20 DAYS FROM THE BILL/STATEMENT ISSUE DATE.
THIS IS CALLED DUE DATE.
IN OUR CASE, IT WILL BE AROUND 20THAUGUST.
IF YOU PAY YOUR ENTIRE CREDIT CARD OUTSTANDING BY THE PAYMENT DUE DATE, YOU DO NOT INCUR ANY INTEREST CHARGES OR PENALTY.
IN OUR EXAMPLE, IF YOU PAY THE CREDIT CARD BILL BEFORE 20TH AUGUST, THEN YOU WILL NOT BE INCURRED ANY CHARGES.
BUT IF YOU FAILED TO PAY THE AMOUNT BEFORE THE DUE DATE, THEN YOU WILL BE CHARGED HIGH INTEREST RATES THAT VARIES FROM 36% TO 42% ANNUALLY ON THE WHOLE 50 DAYS PERIOD.
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