I’m brand new to credit cards. If my limit is $200 is it true I shouldn’t use more than $40? If I immediately pay it off, can I charge $40 to it multiple times per month?
Typically a Credit Card with only a $200 limit is called a “Student Card” so congratulations on starting your credit journey on the right foot by asking these questions.
If your limit is $200, you can charge up to the $200 limit in any combination you like. But you will receive either a “Card declined” message or a penalty fee if you charge over the limit. (So, don’t do that!)
If you pay off the entire balance every month you won’t be charged interest (although some Specialty cards designed for people with bad credit may charge some sort of fee anyway, so be careful about those cards).
The credit card “month” doesn’t always correspond to the calendar month so beware of that. Your “month” often starts the day you are approved so it might run from the 16th to the following 15th or something. But you can often change it on request, to better suit your schedule. Assuming that your month did run from the 1st to the last day of the month…
If you charged $200 in January and only paid $50 back you would be charged interest on the $150 balance, so theoretically in February you might only be able to charge another $45 or whatever before your card maxes out again. But…
Credit card bills are a little strange. They usually give you 20-30 days to pay the bill (called a “grace period). So, if your billing month runs from January 1 -January 31 your bill “due date might be February 20th. So, as long as you pay by February 20th you aren’t charged interest. BUT, your $200 limit still holds, so if you need to use the card you will have to pay it off earlier. If you need to spend more than $200 in a month you can make multiple payments to your card in a single month. So if you spend $200 in the first week you can make a $200 payment online and then you can charge another $200 during the rest of the month. Your bill will show your first $200 charge, then a $200 payment, and then state the remaining balance due as of the end of the month and that is the amount you need to pay to avoid paying interest.
So, in the example above suppose after paying off the $200 you charged another $120 in the last three weeks of the month. Your bill would state that by February 20th you must pay a minimum of say $12 or the full balance of $120 (or anything in between). But you could still charge another $80 from February 1- February 20. And then pay the $120 “full balance” that the bill said. You wouldn’t be charged interest on the $80 if you paid the $120 off before March 20th.
Credit Utilization
As far as only charging $40, you are probably thinking of the “Credit Utilization” calculation for your credit score. That really doesn’t apply with a credit limit of only $200. Just keep paying off the entire balance every month and you will be fine, since the credit card companies usually report to the credit agencies after the due date anyway, so if you pay it off on time your balance due will be zero, thus your utilization will also be zero.
If you always pay your balance in full, before long the bank will increase your credit limit trying to get you in over your head, so you can’t pay it off every month. That way they can sock you for massive interest. Don’t fall for it. NEVER charge more than you can repay in a month, eventually, your credit limit will be so high that you will be charging less than 40% of your credit limit because that is what you can repay in a month.
Good Luck, Thanks for asking!
If you have a financial question, feel free to ask and I will do my best to answer!
Image Created by Meta AI