When getting a credit card, you need to understand a lot of card basics things before you apply for one. Knowing how they work, what kind of payments are involved, what are the benefits, and the actual costs of carrying one. A lot of people are scared of credit cards and think that they are a scam.
This is because they’ve heard negative stores from other people’s experiences. However, the major reason for this is that most people don’t really get informed when getting a credit card. This is why we’ve decided to give you honest information about all the essentials that will help you understand all the benefits and potential downsides of using one.
5 Basic Reasons Why You Might Need a Credit Card
In case you don’t have a credit card at the moment, there are several reasons why you might want to get one in the future. Here are some of the most common reasons to own a credit card:
- Credit cards offer a lot of different benefits like introductory APR with 0% interest, cashback, discounts, and others that might help reduce business costs.
- In case you are out of cash entirely and have an empty bank account, a credit card can serve you well as a backup plan until you get back on your feet.
- There are various reservations that can only be made using a credit card. Some examples include car rentals, renting accommodation, and so on.
- There are also lots of purchases that need to be made exclusively via credit card. For example, you need a credit card to make online purchases and buy plane tickets.
- They can be used for building a credit score. It’s possible to do this with other types of loans but having a single credit card makes the process a lot easier.
Passing on a credit card might seem like a safe thing to do to make sure you don’t rely on loans. However, in modern business and shopping, there are too many benefits of using credit cards.
Basics about What is credit card?
Credit cards are payment cards that allow cardholders to borrow money until they’ve reached the credit limit of the card. Cardholders use the card for transactions which are then added to the bill. An important thing to remember is that credit cards come with purchase interest if the holder is carrying a balance.
Simply put, if you are carrying a balance, you will get an interest fee on everything you buy. The interest percentage varies from one card to another. However, compared to other payment services, their interest rates are fairly high.
The payment history and credit card balance can both affect the holder’s credit score. Credit cards can be used for buying anything from meals, clothes, to home appliances. They are perfect for making instant purchases if you don’t currently have any money.
In general, here are 3 basics you need to understand about credit card:
- If you don’t pay off your balance in 30 days, you will have to pay the credit you had and interest as well.
- In general, purchases made with a credit card need to be signed with some exceptions.
- Your credit card represents a line of credit that can be accessed by the cardholder.
Basics of Fees and interest payments that go with credit card
There are 3 ways credit card companies or issuers make basics money, including:
1. Fees: Annual fees and late payment fees.
2. Interest: When a cardholder is carrying a balance and takes it to the next month, they will get charges with interest on their balance or their purchases.
3. Transaction fees: These fees come with some credit cards. They might be fixed or percentage-based, and they are charged whenever the cardholder uses their card.
When it comes to standard credit cards, remember that carrying a large balance will simply eat up all the discounts or rewards you are getting. That’s why it’s important to make payments on time so that your card actually does what it’s supposed to.
Interest rates are important, but not as much as you might think. If you pay your balance regularly every month, (which is highly recommended) you won’t have to pay interest charges at all. If a card has a low-interest rate, other unavoidable charges will be much worse.
Why people use credit cards
In a basics of western countries, credit card is the preferred payment method. In the US, around 40% of consumers prefer using credit cards for their purchases. But why are credit cards so popular?
First of all, a lot of consumers try out credit cards and remain using them due to so many rewards programs that go along with them. To most people, the most crucial feature of credit cards is the reward system.
This is what they first look for, and only after can they focus on charges, interest rates, and other features. Rewards can come in the form of gift cards, rebates, discounts, airline travel, cash back, and so on.
When using a credit card properly, these rewards can help you get back a lot of money. The goal of the companies that issue credit cards is to make people use them for as long as possible. So far, the rewards are the biggest reason why so many people use credit cards.
Don’t get stuck on big upfront offers. Most credit cards with big starting bonuses are usually bad for long-term use, and when the promo period expires, you will be stuck with poor conditions.
Variety of options
The second reason why more and more people are using credit cards is because of the vast range of different credit cards at their disposal. First of all, there are many types of different credit cards for consumers to choose from:
All of these cards are different in their own way and designed for certain lifestyles and spending habits. This means that consumers can find a card that suits them and helps them get basics benefits while not risking getting into financial issues.
Paying for purchases with a credit card helps avoid fraud. When someone steals your debit card and uses it, they instantly draw money from the card. At the same time, if you scheduled payments online and mailed checks, they might bounce, which could lead to insufficient funds and fees. This is something your creditors will notice.
It doesn’t matter if this is all someone else’s fault. All of these events will trigger actions that will lead to lowered credit scores. Reversing these phony transactions might take a lot of time, and getting the money back to the account is sometimes impossible. All of this can cause a lot of complications people want to avoid.
At the same time, when someone fraudulently uses a credit card, you won’t lose any money from your account, that’s because of card basics features. The only thing a cardholder needs to do is inform the credit card company of what happened and skip paying for those transactions he or she didn’t make. For the rest, it is up to the credit company to fix the issue.
Can help in case of emergency
In case of a REAL emergency, credit cards can be beneficial. You always need an emergency fund because you never know what could happen. However, not many people have $2000 in cash to pay for their car repair, buy a plane ticket, or pay medical treatment.
In this kind of scenario, it’s better even to pay interest on your balance rather than having to ask your friends to borrow money or ask your boss to give you your wages in advance. A credit card will always have available credit if you used it correctly. You will have money available in case of an emergency.
The same principle applies to credit cards used to buy clothes, gadgets, and other items. If you find a good deal that is available only for a couple of days and you currently don’t have the money, you can use your credit card to buy that product and pay it off later.
They are convenient
Nobody likes carrying large amounts of cash with them. First of all, it’s quite impractical to have so much money with you. It takes up a lot of your space, and you need a big wallet. Additionally, if you lose your wallet, chances are all of your money will be gone forever.
On the other hand, credit cards are tiny, easy to carry, and convenient. A single credit card can fit into any wallet and be carried easily. In case someone steals your credit card, they won’t be able to use it as they don’t have all the information necessary.
At the same time, if you lose a card, you can simply contact the issuer and have it canceled. This means you won’t lose any money from your credit line. In the end, paying with credit cards is simple, it only takes a few seconds, and you don’t have to wait for change or count the money that you’re giving.
How Many Do I Need?
In terms of practicality, finding a single credit card that fits your basics needs can be enough. However, this is not always the best way to go. First of all, not all credit cards can be used everywhere. For example, merchandise credit cards are usually limited to certain store(s) and aren’t accepted anywhere else.
Another important factor to consider, of course, is building a credit score. You can do this with a single credit card but in the right circumstances having multiple credit cards will help you achieve a better credit score and in less time.
Their major considerations are the benefits. With several credit cards and a bit of strategy, you can ensure that you always have basics rewards available on a single given card. This way, you will be able to make the most out of the benefits each one of them gives you.
Don’t apply for multiple credit cards at the same time. Credit card issuers that check your credit report during the application process will be able to see that you have multiple inquiries. This will suggest to them that you’re desperate for credit and they will see you as a risky candidate.
Basics Of Choosing Your First Credit Card
All of this information about credit cards and different sizes and shapes they come in can be a little too much to process. However, when getting the first card, there is a simple general rule of thumb that can help choose the right one – get a card that is consistent with your basics personal needs.
Don’t listen to your friends and family when choosing a card. What works for them might not work for you. If you are in college, get a student card, simple as that. If you travel a lot look for credit cards that give a lot of travel rewards. You like shopping a lot at your favorite store, see if they offer their own shopping card, simple as that.
Secured and unsecured credit cards
When looking at shopping credit cards or any other type of credit card, you will often see that they are categorized as secured or unsecured. But what does this mean? Not all credit cards are the same, and you need to understand the differences between these two terms.
Secured credit card basics
Secured credit cards are backed by a cash deposit that needs to be made by the card owner. This cash deposit serves as collateral for the spending you do through your credit card. This is why credit card issuers refer to these cards as “secure.”
The spending limit on a secured credit card is set by the deposit that you put down. In case the cardholder wants to increase his or her credit limit, that person will have to put an even larger deposit.
However, when maintaining a good payment history, a lot of lenders are willing to increase the spending limit without requiring an additional deposit. At the moment, there are less secured card offers on the market compared to unsecured cards.
Unsecured credit card basics
On the other hand, unsecured credit cards don’t have any collateral attached to the spending limit. When a card doesn’t require any collateral deposit, then it’s referred to as “unsecured.” With unsecured credit cards, the spending limit is determined by the lender depending on how much overall risk the cardholder presents to them.
The card issuer determines the limit by looking at basics factors such as payment history, income, credit report, and credit score. If a person is unable to pay off their card, the issuer will put collection actions into motion. That could include sending a debt collection agency, reporting the balance to the credit bureau, legally taking a cut of your pay, or even using you.
When opting for a credit card be realistic, analyze card basics. In case you have poor credit chances are you won’t get the best deal possible. However, don’t let this discourage you as you can work your way up the credit chain.
Consider getting a credit card that doesn’t require a credit check. One of the better options for this is shopping credit cards. Luckily for you, we’ve written an extensive post on shopping cards explained so if you want, check it out to learn more about them.