Have you been contemplating on whether to acquire a credit card? A credit card is a financial tool. Just like any tool, its effectiveness depends on how well you use it. For it to be useful, the credit card user needs to understand its basic principles.
Who is eligible to acquire a credit card? What are the credit card’s features? How do you become a responsible credit card user? How do interest and late fees work? These are all important questions everyone should understand.
If you can answer the above questions, then you are likely ready for your credit card journey. But if you are not sure, then this article is here for you. Continue reading to learn more about how to be a great credit card user.
Fees And Penalties
This feature comes first for a reason. It’s the leading cause of debt among credit card users. Charges accumulate quickly and can easily land the cardholder in a pit of debt. Every card credit card user ought to know that interest, fees, and penalties are the means your bank uses to make money. Therefore, don’t think they will be lenient with you.
Every time you make a purchase, the card-issuing bank pays. At the end of the month, your bank issues a statement requiring you to pay back their money on a given date. When you exceed the due date, then you are charged a late fee.
Also, when you postpone your credit card balance to the following month, the bank charges you interest. Try to pay your statement balance in full to keep interest charges at bay.
Some cards also charge annual fees. However, one can avoid them by acquiring cards that don’t charge such fees. Also, there are several ways to waive it. For instance, your bank can give you a retention offer equivalent to a valuable statement credit. In addition, several banks waive annual fees for active-duty military personnel.
Credit Card Type
This is another essential credit card feature every card user needs to know. There are different card types on the market. An issuer may offer one or all of them. Sometimes an issuer can offer different versions of the same credit card. They often include a very basic card offer; it provides no extra perks but offers low-interest rates. A rewards credit card gives rewards for each purchase made. Premium credit cards are loaded with benefits and perks, but they often charge a higher annual fee. Lastly, a balance transfer credit card accepts an introductory balance transfer interest rate that is typically lower than other cards.
This is the maximum amount of credit that a bank or any other financial institution/lender extends to a client. The lending institution gives establishes a limit on a line of credit or a credit card. A lender determines the credit limit based on the information the client provided in the application form. It includes personal income, credit rating, and loan repayment history, and other factors.
Perks And Rewards
Rewards on a Premium credit card are given based on the money you spend. For instance, the rewards may be one point per dollar. Rewards keep accumulating and can be redeemed for cash, gift cards, and even travel. Alternatively, they can be redeemed for merchandise in the reward program’s online shopping mall. The exact details depend on the card issuer.
Perks, on the other hand, include additional tools and features that benefit the credit card user. These tools can help keep a record of your spending and allow you to download your transaction history. They also provide credit card benefits like free car rental insurance and free warranty extensions.
The grace period is a set time after the due date during which payment can be made without penalty. Usually, financial institutions provide a grace period of 15 days. It should be stated in the contract to avoid problems in the future.
A grace period allows a client or borrower to delay payment for a limited time beyond the due date. During the grace period, no penalties or late fees are levied onto the client. Also, payment during this period does not cause a black mark on the borrower’s credit report.
When you understand the above credit card features, you can effectively use a credit card. Also, when you appreciate that ultimately, credit cards are out there to make money for banks, you will minimize your spending.
When you pay your bills on time, avoid carrying forward a balance, and avoid being an impulsive buyer, your credit card journey will be pleasant. Credit cards are not to help you acquire what you can’t afford to pay for. They are to time-shift money for you so you can purchase the necessities of life.