Advantages of Surpassing the Minimum Payment on Your Credit Card
Credit card management plays a crucial role in maintaining good financial health and a favourable credit score. Here are some key points to consider when using credit cards.
Firstly, aim to pay at least the amount you've charged in a particular month to help improve your credit utilization ratio. This ratio, which is the amount you owe on your card as a percentage of your credit limit, is an important component of your credit scores. A lower credit utilization ratio can improve your credit scores, with a ratio under 30% being preferable for maintaining good credit scores.
Paying your credit card bill in full every month activates a credit card grace period. During this period, you aren't charged interest on new purchases. This can be beneficial for managing your finances and keeping your credit utilization ratio low.
It's essential to avoid carrying a credit card balance for both credit score and financial health. Maxing out a credit card damages both your credit score and credibility. Overpaying a credit card does not result in penalties, and paying more than the minimum on your credit card bills is important if you're still using your cards for new purchases to prevent debt from piling up.
The exact calculation of the minimum payment varies by issuer, but it typically includes interest and fees accrued during the statement period, plus a small portion of the principal balance. Paying more than the minimum amount due on your account demonstrates commitment to reducing debt and can help reduce your credit utilization ratio.
Maxing out a credit card may lead the issuer to close the account, making it difficult to get other types of credit, even if your credit score is within an acceptable range. Overpaying a credit card results in a credit towards future purchases or refund by the issuer if not used.
In Germany, credit card issuers such as Hanseatic Bank GenialCard and Barclays Visa offer relatively long interest-free grace periods for customers who fully and timely settle their credit card bills. The GenialCard, for instance, is known for its attractive long interest-free payment period.
Setting priorities is important with credit cards: always make minimum payments on time, then pay more than that minimum. This approach can help you manage your credit utilization ratio effectively and maintain good financial health.
