Credit cards are a great way of making payments with credit for goods and services. They help users to manage their money more easily. Using credit cards is like borrowing money from your bank. They can be used for budgeting and improving credit rating if used properly. If you fail to make that payment in time though, you will be subjected to paying an interest rate.
The bigger problem, however, is that there are a number of credit cards available and ending up with a wrong one will not be of much use to you. Therefore, it is necessary for you to understand all about credit cards and then decide which one you should be using.
We have compiled all the essential information on credit cards that will help you make a sensible decision. Read on and you will find out how exactly these cards work and if you even need one or not.
How Do Credit Cards Work?
Before going for a credit card right away, you should look into the details of how a credit card works. Given below is the basic information about the process:
A credit card allows you to borrow money from your bank and spend it as you please, but there is a limit to the amount you can borrow. Moreover, you have to pay an interest on the borrowed amount until you pay it back. Based on your credit history and financial status, an amount is fixed by the card provider and you cannot spend above that fixed amount. It is also called your credit limit.
Further details including the interest rates will also be agreed upon in advance and you are supposed to sign for it only if you agree with that interest rate. However, you must keep in mind that the interest rate will not necessarily be the one advertised by the providers since they offer that to only 51% of the applicants.
Interest Free Period
In most cases, a monthly bill is sent to you enlisting the items you have purchased with your credit card. If you pay that amount within the given time, no interest will be charged but in case you fail to do so, the interest will be added to your bill.
This period where you do not have to pay any interest differs with different providers. Usually, it is between 25 to 50 days. Moreover, the repayments are not deposited instantaneously so you should make them a little earlier in order to make sure that you are not charged with interest. Additionally, you will be paying an extra fee for the services of a credit card as well.
Another reason that you must never delay your repayments is to avoid a bad credit history. If you are not clearing your credit card payments and interest keeps building on it, chances are that the bank and other lending companies will be reluctant to lend you money in the future.
Moreover, you should keep in mind that paying the minimum repayment as directed by your bank mostly covers the interest only. It only, if at all, covers a minimal portion of the actual credit card debt. If you keep paying this minimal amount, you will not be able to pay even the smallest portion of your debt. Therefore, you should always try to pay as much as you can.
Why Do You Need a Credit Card?
If you are wondering why to go for a credit card instead of using cash, then given below are a few benefits of credit cards that will make you think otherwise.
Credit Card Protection
The Consumer Credit Act, which was passed in 1974, states that if a purchase goes wrong, the credit card provider is equally responsible as the seller of that product. This is called consumer protection and is probably the best thing about owning a credit card. This rule is for a purchase of £100 to £30,000.
In simpler words, if you buy something using a credit card and you either fail to receive it or it is faulty, you can claim a replacement or you can ask for your money back not only from the retailer but also from your credit card providers.
Many people claim that since they have applied for a credit card, they are free from all hassles of taking a loan, regardless of its usage. However, even they might find themselves in a fix when they are rejected for bank loans. The reason behind this is that lenders often prefer people who have a better repayment history and since they have not borrowed any, they have automatically not paid any either.
Going for a credit card and making a few purchases on it and then paying back the money in the interest free period can help you solve that problem. This will ensure the lenders of your reliability in terms of repayment and they will be more interested in lending the money to you.
The Final Step
By now you must have made your decision regarding whether you need a credit card or not. So what is the next thing to do? Getting the right one!
It is essential that you go for a credit card that is more suitable for your needs and benefits you more. Since there are a variety of credit cards out there, you need to make your decision very carefully.
No matter which one you choose, always go for a realistic credit limit and a comfortable interest rate. Using a credit card often gives one a feeling of using money unlimitedly but this is not the case since you will have to pay it back later.
We are here to help you with this extremely important decision of your life by providing you a chance to compare different credit card lenders. So are you ready to hold your credit card in your hands? Find the one that suits you best at Quiddi Compare.