This might be a scary concept if you’ve never used credit cards before. When utilized properly, however, they may give priceless free protection, an opportunity to (re)establish your credit, and the most affordable option for borrowing thanks to exclusive 0% offers. This article will help you avoid burning by explaining the many kinds of cards that are available and what to look out for.
A credit card: what is it?
To put it briefly, a credit card is a means of making purchases. Nevertheless, the credit card company pays and sends you a statement for it all each month rather than deducting money from your account each time you spend. You won’t be charged interest if you pay this off in full.
If you choose to make a lower payment, it is carried over to the next month and interest will be levied on the entire amount until it is repaid (unless you are eligible for a special 0% interest rate, which we’ll go over in more detail below).
For this reason, the phrase “credit card” is not particularly useful; it is best to refer to a card as a “debt card” or a “borrowing card.” Whenever you use the card, you are not utilizing credit that has been extended to you; rather, you are accruing debt that you must repay.
How do credit cards operate?
Following your selection of the ideal credit card (see the many kinds of credit cards below), there are a few procedures involved in obtaining one:
Prior to applying, find out your odds of getting approved for a card. Before you apply, use our eligibility calculator to see your chances (without it being on your credit file).
Send in an application. Usually, you may do this in-person or online through the card issuer’s website. In order to decide whether to lend to you, the supplier will verify your credit.
It should arrive with your card in two weeks. If it works, you may begin using your card as soon as the supplier mails it to you.
You’ll get monthly bills and have a credit limit. There will be a minimum payment due each month on your card; be sure to pay this at least. Even better, to avoid paying interest, pay it off in full if at all possible.
In addition to transaction fees from merchants when you use your card, interest payments and fees are how credit card companies recoup their costs. Therefore, the longer you have debt and the higher the interest rate you pay on it, the more valuable of a client you are to them.
Credit card benefits and drawbacks
It’s fair that credit cards are frequently maligned. When used improperly, credit cards may be nightmares. Nevertheless, for people who misuse them or are overdrawn, debit cards—the card connected to a bank account—also function as debt cards. Debit cards can now be significantly more expensive than credit cards due to 40% APR overdraft fees.
Don’t touch them if you don’t have a credit card because you’ve been burned before or you don’t trust yourself with one. Don’t continue reading. This is where you stop. However, if you don’t have one because you believe they’re all terrible, you may be forfeiting significant safeguards.
To assist you learn more about credit cards and their advantages, we’ve compiled a brief overview of their advantages and disadvantages below.
