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What is a credit card?

Back

A credit card is a plastic card issued by financial institutions that allows cardholders to borrow funds to pay for goods and services, with the agreement to pay back the borrowed amount plus any applicable interest.

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What is a credit card balance?

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The credit card balance is the total amount of money that a cardholder owes to the credit card issuer at any given time.

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How do you calculate the new balance after a payment?

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New Balance = Previous Balance - Payment Amount.

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What is a finance charge?

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A finance charge is the cost of borrowing money on a credit card, typically expressed as a percentage of the outstanding balance.

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How is the finance charge calculated?

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Finance Charge = Outstanding Balance x Finance Charge Rate.

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What does it mean to charge new purchases on a credit card?

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Charging new purchases means using the credit card to buy goods or services, which increases the total balance owed.

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How do you calculate the new balance after new purchases?

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New Balance = Previous Balance + New Purchases.

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What is the importance of making payments on a credit card?

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Making payments on a credit card is important to reduce the balance owed, avoid late fees, and minimize interest charges.

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What happens if you only make the minimum payment on a credit card?

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If you only make the minimum payment, it will take longer to pay off the balance and you will incur more interest charges.

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What is the impact of interest rates on credit card balances?

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Higher interest rates increase the cost of borrowing, leading to higher finance charges and a larger total balance over time.