To understand credit card basics, it is important that we first understand its major characteristics. It is a type of a financial account. Using credit means that the user is offering the banks money in place of the users own money as the payment of a product or service today and repaying that amount to the bank over time. In order to avail the benefit of using the bank’s money, the customers are charged with a certain amount of interest and this is the point where understanding credit card basics comes in handy.
Credit card basics
How does a credit card work?
When you buy a product or service with a credit card, you will hand it over to the cashier or submit your card number, the concerned authority will then validate your account and conform that your bank is allowing you to make such a purchase. If all is well, the transaction will be added in your credit account and will accumulate as you make transactions.
Once every month, the bank will calculate your credit account balance and delivers you a bill. The best way is to pay the bill in full before the due date or if not possible, try paying a minimum amount which has been determined by the bank in order to avoid late fees. Moreover, if you avoid late fees, you will be charged with interest fees on the amount you owe the next month. Since interest ads up quickly, it can your $100 purchase worth $200 of payment.
What to look for when applying for a credit card?
Developing financial management skills is essential when you apply for your first credit card as it can open additional doors for more financial options. In order to start your financial journey by keeping the right foot ahead, following mentioned are some key points which requires consideration when applying for a credit card and which are rendered to be credit card basics:
-Low interest rates: having low interest charges will reduce the amount to pay in case you carry one statement period to another period. Many banks offer promotional rates that last for a few months only or until the introductory period. Paying your account balance in full will help in avoiding interest payment altogether.
-Learn about the fees: When you go to apply for a credit card, you will find that many cards have enormous features. Although, these features provide security to some extent however, they are provided with an annual fee which can increase your monthly credit card charges. Basic credit cards operate with less or no fees. A typical credit card charges for other transactions like balance transfers or cash advance.
-Secured vs. unsecured cards: This is crucial when learning for credit card basics. Unsecured credit card removes the element of providing collateral for obtaining a card. This collateral can be in the form of funds in your savings account. However, to qualify for this category, a good credit history is considered essential. On the other side, if you do not qualify for an unsecured card or are new to credit, then the secured credit card option is the best alternative. Obtaining this card requires an upfront deposit which serves as collateral for your account.
Understanding credit card basics allows you to control your spending habits and making timely payments as this is the way through which you can build a strong and solid financial future.