What is a credit card

Using a credit card is a convenient way to make purchases; some cards even give you rewards for spending. Also, by using a credit card, you can build a good credit history. Which helps you to meet your financial goals.

To maximize credit card usage, it’s necessary to understand “What is a credit card,” “How to pay EMI through credit card“, and how to utilize it effectively. Credit cards can be extremely helpful when it comes to rebuilding your credit history. Credit cards are essentially a way to borrow money in the short term. Which you have to repay as repayment instead of debit cards linked to a bank account.

When you use a credit card, you essentially use the credit card company’s money to make the purchase. It is then your responsibility to pay the credit card company the money you borrowed, with or without interest, depending on when you make the payments. Whenever you use your credit cards, you are given a credit limit that you can use for making purchases.

The amount you can borrow will vary depending on your credit score, income, and account history. Whenever you purchase with your credit card, the available credit on your account is reduced. After you make a payment, you free up available credit again. You receive a monthly statement from your credit card company detailing your activity and balance, your minimum payment, and the payment due date.

Process of Using a Credit Card

The use of credit cards is very easy. You can be asked to insert your card into a chip reader at a store. Additionally, you can add your card to digital wallet apps to make contactless payments in stores using your card. During a purchase with your card, the merchant, your credit card company, and the card network work together to authorize and process the payment. These processes are completely automated and take place as quickly as possible. As well as using your credit card to help boost your credit score, you should also use it in a way that does not cost you any more than necessary in terms of interest and fees.

Several factors contribute to your credit score, but your payment history is the most important. On the other hand, your credit score will suffer if you miss or pay your bills late. The first tip you should follow when using a card is to make sure you pay your bill every month on or before the due date.

Credit Card Fees

When you understand “What is a credit card” is, the next step is to know about the fees associated with credit cards. As a result of the numerous fees that credit cards charge, using them can also become very expensive. The following are some of the most common fees that you may encounter

Fees for annual membership
Fees for international transactions
Fees for balance transfers
Charges for cash advances
Overdue payment fees
Charges for returned payments

The credit card agreement should list these fees and the card’s interest rate. Before you apply for the card, you will also be able to find these details online at the bank’s website. Consider the value of the rewards program offered by the card and any other benefits it may provide if you are considering a card with an annual fee. There are many cards available without an annual fee. It may also be good to consider a card that does not charge foreign transaction fees when planning to spend time abroad.

Keep an Eye on Your Balance

The second most important factor affecting your credit score is your credit utilization ratio and payment history. It determines how much of the credit is available to you when using it. The general rule is to keep your card balance as low as possible concerning your available credit limit. Your credit score can drop if you max out your credit cards, and creditors may also view you as a higher-risk borrower if you max out your credit cards.

The Bottom Line

Credit cards can help you build credit, but they can also work against you if you use them incorrectly. As you compare credit cards, make sure you understand what card and what you’ll pay in interest and fees and what you can gain from any rewards or other benefits the card provides. You should regularly review your free credit reports once you use a credit card to ensure your account history accurately reflects the credit bureaus.


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