Know the basics: credit cards explained
The credit card is one of the most important tools in the financial world. All over the globe, it is rare to come across anybody not using one. People use credit cards to pay for expenses and pay for goods and services, but what exactly is the credit card and how does it work?
How credit cards work
Credit cards are thin strip of plastic with an embedded chip that is tied to your account which allows you to make transactions without paying cash. It essentially allows you to borrow and spend money up to a certain limit. Your bank or credit card company will then charge you an agreed upon percentage as interest until the balance is paid up.
There are several factors that influence your credit or spending limit. One of them is your personal history which covers things such as your income and credit ratings.
At the beginning or end of every month, depending on the bank or card company, you will be sent an itemized list of the transactions you carried out with the card. It is your responsibility to crosscheck this list to ensure that everything is as it should be. If there is an item on the list you didn’t buy or cannot remember buying, you will need to contact your provider immediately so that it can be resolved.
Most providers give what is known as an interest free grace period. During this period, you will not be charged interest for using the card. You will have to check with your provider as the number of interest free days differ by provider.
It is vital that you stay on top of your repayments as failure to meet up can affect your ability to secure financial aid such as loan, mortgage or credit in the future.
How to get a credit card
It should not be taken for granted that everyone has a credit card. There are actually people who extol the advantages of paying with cash. However, for those who would like one, applying for a credit is simply a matter of entering your personal information into a form online and submitting. But actually getting approved for the card requires a bit more effort, especially if you want one from a reputable provider.
Credit card companies have a checklist they follow before approving anyone for a credit card. As part of this checklist, they would evaluate your credit score. This is a record that shows if you have a history of delaying or failing to meet your repayments deadline. They would also take a look at your income as stated on your application. This is what would determine your credit limit and your interest rate. If they are not satisfied with what they see, you may be denied.
Being denied for a credit card hurts. This is why it is essential that you take proper stock of your situation before applying and ensure that you don’t have a history that can hurt your application process.
At the end of the day, the right credit card from the right card provider opens you up to a world of opportunities.