A) Carrying large balances often results in a lower interest rate.
B) Paying off the balance monthly typically leads to a lower interest rate.
C) Making early payments usually does not affect the interest rate negatively; it can have more favorable terms.
D) Making late payments often leads to a higher interest rate as a penalty.
All options are correct.
Credit cards with a tiered interest rate structure typically charge cardholders different interest rates based on their credit card usage and payment behaviour. Let's break down each option:
A) Carry Large Balances: These cards may offer a lower interest rate to cardholders who carry large balances from month to month. The idea is to incentivize those who maintain high balances to continue doing so, as they generate more interest income for the credit card issuer.
B) Pay Off Their Balance Monthly: Cardholders who pay off their entire balance in full each month, commonly referred to as "transactors," often receive a higher interest rate when they do carry a balance. This is because these cardholders are not a significant source of interest income for the issuer since they clear their balances regularly.
C) Make Early Payments: Making early payments typically doesn't result in a higher interest rate. In fact, cardholders who pay their bills early or on time are often rewarded with lower interest rates or may avoid interest charges altogether, depending on the card's terms and the grace period.
D) Make Late Payments: Cardholders who make late payments are more likely to be charged a higher interest rate as a penalty. Late payments indicate higher credit risk to the credit card issuer, and charging a higher interest rate serves as a way to compensate for that risk.
In summary, credit cards with a tiered interest rate structure generally charge lower rates to those who carry large balances (option A) and may charge higher rates to those who pay off their balance monthly (option B) or make late payments (option D). Making early payments (option C) typically does not result in a higher interest rate; in fact, it may lead to more favorable terms. However, the specific terms and conditions can vary between credit cards, so it's important for cardholders to carefully review their card agreements to understand how interest rates are applied.