All You Need To Know About Credit Cards

You may have seen several people use a credit card to buy things and then make payments later, to the bank.

In simple terms, that is the function of a credit card.

But what exactly is a credit card?

It is a thin rectangular piece of metal or plastic that is given to you by the bank or a financial institution that lets you borrow money to pay for goods and services. But here is the catch, you are expected to pay back the money you used plus the interest which was agreed upon during the time of receiving your credit card, the payments should be done within a certain period of time.

Apart from a standard credit line, the bank issuing the credit card could also grant you a separate cash LOC (line of credit) if you’re a cardholder, this will enable you to borrow money in the form of hard cash via ATMs, bank tellers, or credit card convenience checks.

Cash advances like these usually have different terms, like higher rates of interest and no grace period.

The financial institution usually pre-determines and sets a limit on the amount that can be borrowed by the credit card holder and this limit is based on the individual’s credit rate.

Most of the merchants out there accept credit cards and this has become one of the most used payment methods as of today.

Usually, credit cards charge a higher APR (annual percentage rate) as compared to other types of consumer loans although there are some competitive credit card deals out there. The interest charge on unpaid balances is levied after a month of the purchase made. If you have previous balances that have been carried forward, then you will not be given any grace period for the new charges.

That is why you should pay your balances before the due date, this also improves the credit score. If you push your payments, the interest also starts piling up.

Different financial institutions offer different interest rates like Kotak Credit Card Payments will have a different interest rate than a Visa credit card.

More About Credit Cards

Here are a few things that you should know about obtaining a credit card.

Credit Cards Are Not The Best Option For Beginners

Being a beginner you will not be eligible to qualify for a lot of the credit cards that are available. You will be required to start off with something small, a credit card which is intended for people will little or no credit history.

Not all of them are as bad as you think, there are quite a few financial companies that offer decent rewards and also fees on an annual basis.

Here are some options that you can consider choosing from:

• Secured credit card
• Student credit card
• Credit card intended for people with decent credit

Making A Security Deposit Makes Getting A Credit Card Easier

If you happen to have trouble securing a credit card as a beginner, try opting for a secured credit card. Secured credit cards are meant for people who do not have any kind of credit score. In order to open your account, you will be required to make a cash deposit and the credit limit that you will be given will equivalent to the amount you deposit. The minimum amount range from $200 to $500 based on the card and the financial institution you’re taking it from. A lot of credit cards allow you to deposit more amounts so that you can get a higher credit line.

But if you fall behind on payments you will lose the amount you deposited. But if you make your payments on time you will be able to establish a credit score in just a few months. That will also give the financial institution to upgrade your credit card to an unsecured one. Furthermore, you will get the deposited money back.

Also remember that secured credit cards are not like prepaid credit cards. When it comes to prepaid credit cards you load the money into the card beforehand and then go on to make a purchase. Prepaid credit cards do not affect your credit score in any way. When it comes to secured credit cards you will be required to make monthly credit card payments and it does affect your credit score.

Your First Credit Card Has The Option Of Ruining Your Credit Score Or Building It
A lot of people who take credit cards, take it to increase their credit scores. But here’s the catch if you happen to be a little careless with your credit card payments, then your credit scores will be affected.

Your credit card activities will be reported to the credit card bureaus by the financial institution which issued the credit card to you. The credit card bureaus then compile the information that forms the main basis which makes up credit scores.

The information that is reported includes the timely or untimely payments that you make and the amount of the credit you have used.

There are two things you should always refrain from doing, maxing out your credit card and making your payments late.

So make sure that you use your credit card in a way that it helps you and not the other way around. That means to stay under your credit limit and pay your credit card bills on time.

To do that make sure you track your credit scores to make sure you only improve them.

View The Rates And Fees Before Applying
The financial institution issuing the credit card is required to disclose interest rates, fees, and other terms to the public. You can find these detail on the online application page of the financial institution’s website and even in offline application papers.

The page which contains information is referred to as “Schumer’s box”. It includes:

• Annual Fees
• APR (annual percentage rates)
• Foreign transaction fees
• Late fees

Credit Card Fees Are Avoidable

You should know that it is very much possible to avoid credit card fees.

• A lot of financial institutions do not charge annual fees,
• If you make your credit card payments on time, then you are not liable to pay any fees, you can look up information on the internet if you want to know how to pay your credit card bill.
• Foreign transaction fees are pointless if you do not want to transact internationally.

Don’t Pay Late

If you happen to make your payments late you will be liable to pay late payment fees. That depends on how late you pay your fees.

• Late Fees: Late fees are adjusted legally on an annual basis. Typically, the very first time it will cost over $20. If it is continued then it can also rise upto $40.
• APR Penalties: most of the financial institutions do not charge APR penalties anymore. But there are some that do.

Conclusion

Credit cards are a great payment method but there is a certain way that you should use it, if you do not use it in the right way, it can cause financial problems. But if you use it in the right manner then it will benefit you and increase your credit scores, which, in the long run, will help you get loans and better credit rates.