How Do Credit Cards Work: A Simple Guide

It is no secret that several people love credit cards and the benefits they bring to their day to day lives. This simple guide to credit cards should help you know more about them. In most cases, credit cards are considered to be the cornerstone of the American economy today.

It is virtually impossible to find anyone that doesn’t use credit cards to pay for stuff, whether they’re using them for large purchases or just groceries and gas.

With the line of credit offered on credit cards, you can pay for stuff even when your money runs out. If used correctly, a credit card can be one of your best assets when it comes to financial management. But how do credit cards work? Read into our simple guide to find out more about that.

simple guide

How Do Credit Cards Work?

First of all, credit cards offer you the option to make payments even when you don’t have money. It is like a loan, but instead of you getting the money in your bank account, you get it in credit on a card. The issuer, with the help of your credit score, will determine how high of a limit you get on your card.

For example, if your limit is $500, you can only spend up to that amount in credit. Of course, you can still make payments from your finances have you already used up to that limit. At times, you can over-exceed the limit by a few extra dollars, but that comes with penalties and charges.

Is It For You?: A Simple Guide

Several people, when they reach the age of 18 years, get too excited to get their credit card that they forget to answer the question ‘why?’. So, before you get to answer if it is right for you, maybe you should see why you’re getting the card in the first place. How do you know you’re fit for a credit card?

  • Are you able to make minimum payments each month?
  • Do you have the eligible credit score to get the credit card?
  • Are you 18 years old? For some issuers, you even have to be 21 years old to get a card.

If all those boxes are checked, you may be ready to get your hands on a credit card.

What Are the Pros and Cons?

So, before you can think of getting your hands on that credit card, what are the pros and cons of getting one?

Pros

  • Great perks: Most credit cards come with great perks like bonus points, among others.
  • Easier and safer to carry than cash.
  • Buy now and pay later: One of the main reasons that people love credit cards is because you don’t have to wait to get money to make that purchase on the go. You can buy today and make the payments to the card later on.
  • Protection: Say you book for a flight and something happens; your card issuer must ensure that your amount is recovered.

Cons

  • Additional fees: Remember when we talked about exceeding your limit? Well, that comes with additional fees and penalties.
  • High interest: Unlike most forms of lending, credit cards have some of the most significant interest rates in the market.
  • Expensive to use abroad.
  • Withdrawal of cash: These are quite expensive.
  • Late payments: These will damage your credit score

Conclusion

You can talk of credit cards all day, as they offer you an easy way to move about financially and make your life better. But, if you don’t know how credit cards actually work, you’ll have a problem, especially with the enormous fees you can incur. This is just a simple guide before you can opt for getting that card you have been eager for.