Before applying for a credit card, you need to understand many basic things about it, including how it works, what kind of payments are involved, what the benefits are, and what the actual costs are. Many people are scared of credit cards and think they are scams.
This is because they’ve heard negative stories about other people’s experiences. However, the primary reason is that most people are not informed when getting a credit card. This is why we’ve decided to give you honest information about the essentials to help you understand the benefits and potential downsides of using one.
5 Basic Reasons Why You Might Need a Credit Card
If 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:
- Cards offer many benefits, such as introductory APR with 0% interest, cashback, discounts, and others that might help reduce business costs.
- If you are short on cash and have an empty bank account, a credit card can serve as a backup until you can get back on your feet.
- Credit cards are required to make various reservations, such as car rentals and accommodation.
- Many purchases also require exclusive credit card use. For example, you need a credit card to purchase plane tickets online.
- They can be used to build a credit score. It’s possible to do this with other types of loans, but having a single credit card makes the process much easier.
Basics about What is a credit card?
Credit cards allow cardholders to borrow money until they reach their credit limit or make transactions, which are then added to the bill. It’s important to remember that cards come with purchase interest if the holder has a balance.
You will pay an interest fee on everything you buy if you carry a balance. The interest percentage varies from one card to another. However, their interest rates are relatively high compared to other payment services.
Credit cards can affect a person’s credit score based on their payment history and balance. They can buy anything from meals and clothes to home appliances, making them perfect for instant purchases if you have no money.
In general, here are three basics you need to understand about credit cards:
- If you don’t pay off your balance in 30 days, you will have to pay the credit you had and interest as well.
- Generally, purchases made with a credit card must be signed, with some exceptions.
- Your credit card represents a line of credit that the cardholder can access.
Basics of Fees and interest payments that go with credit card
There are 3 ways credit card companies or issuers make basic money, including:
1. Fees: Annual fees and late payment fees.
2. Interest: When a cardholder carries a balance and transfers it to the next month, they will be charged interest on their balance or 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.
Regarding standard cards, remember that carrying a large balance will 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 does what it’s supposed to.
