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Are you new to the concept of credit cards? Are you tired of being kept in the dark about their uses? Well, read on.
A credit card is a piece of plastic which can be electronically verified. The size and shape of credit cards is standardized. The reverse of the credit card contains a magnetic strip which is the essence of the credit card. When the card is swiped, the information is conveyed to a system that contains data about the credit card holder like name, available balance, country etc.
Credit cards are generally issued by banks and other financial institutions. It is a system wherein the bank or institution lends money to the card holder to be repaid at a later stage. The balance outstanding on a credit card does not have to be paid in full at the end of the month. A certain minimum amount due along with interest is calculated and the customer only has to make a payment periodically for this amount. Every month the minimum amount due is recalculated in accordance with the changing credit usage of the customer. Interest rates vary from bank to bank. In the event of default, the interest rate on a card may jump at an alarming rate.
There is cut-throat competition among various credit card companies. Therefore, they come up with advantages like incentive points and cash-back guarantees to attract potential credit card users. In case of late payments in addition to interest, finance charges and late payment fees will be also be levied on the borrower.
There are so many types of credit cards available that choosing the right credit card may be puzzling to say the least. First, evaluate your needs. Do you need a credit card for business or personal use? Depending on your requirement, several credit cards are available. The broad divisions are secured and unsecured credit cards. Within these two categories, you can choose from low interest credit cards, cards with reward programs, prepaid cards, business cards, travel cards and student cards. Retail chains and department stores have refused to be left behind as far as credit cards are concerned and have come up with their own schemes.
Using credit cards can be very addictive. It is always a temptation to use your credit card to purchase something you don’t really need but want desperately even if it’s beyond your financial capacity. This can become an expensive habit that’s very hard to break. You could end up broke having to spend the rest of your life clearing your credit card dues. Bad credit is becoming a disturbing problem in America.
However, credit cards, if used wisely, can be very beneficial to the borrower. They are safer to carry than cash and if they end up lost or stolen you can intimate the credit card company to block the card. In case of an emergency, when you’re running low on funds, credit cards come to the rescue. It also helps in saving money. If you need to make a purchase but don’t want to invest all your funds in it, you can use a credit card and pay the balance in regular monthly installments.
Credit cards come with pros and cons. It’s up to you to decide whether they work for you or not.