What does credit card mean? How does credit card work? Credit cards Info.
The credit card is issued by banks and financial institutions or credit card companies or stores to their customers in order to make basic transactions i.e. payment on the purchase of consumer goods and services from local merchants using the credit limit that is predetermined on the basis of consumers’ credit rating or score. A credit card is used to borrow funds, usually at the point of sale with pre-determined limits. It is basically a short-term revolving type of financing where customer borrows a small amount of money over the period of time and interest is charged to the customer on credit limit utilization after exceeding grace period which is usually of 30 days. The interest rate is mostly on higher side on this credit facility.
Credit card limit is charged from the customer’s line of credit as they draw the money on pre-set credit limit.
Types of Credit Cards
There are different forms of credit cards that are issued by different entities but the intention of every credit card is same, to borrow money at local merchants. There are three types of credit cards i.e. Major Credit Cards, Store Credit Cards and Secured Credit Cards.
This type of major credit cards has specific nature which usually offers reward programs for the use of credit cards. The interest rate on such credit cards is on higher side after a certain time of credit limit utilization. Issuance of such cards is highly dependent on the credit scoring of the consumers that they gain or make from the good payment and purchase history as well as their maintenance of credit card balance. Major credit cards are Visa Card, Master Card, and Reward Card etc.
Store credit cards are generally issued by the retailer/store to make a consumer purchase the goods and services from them. And retailers usually attach attractive scheme on purchases through such cards. They offer discounts or cash back schemes etc. So, mostly these types of credit cards are issued to encourage customers’ loyalty counting their repayment capacity.
Secured credit cards are issued for those customers who have negative credit scoring. But such cards are issued only after getting an application from customers to deposit some money in the bank which is set as the initial credit limit of the customers and after regaining good credit score, these cards can be upgraded to normal credit cards. The consumer can purchase the goods and services online using such cards.
Advantages of using a credit card:
Credit Card allows you to take advantage of short-term financing without any cost if you pay off the limit at the end of the month. You can also take advantage of credit card incentive offers and cash back offers on your purchases.
Disadvantages of using a credit card:
The credit card is good only when you pay off the credit limit sincerely within prescribed time limit otherwise it will damage your credit scoring and you will not be privileged with its reward and incentive programs.
Besides that, the credit card can also drag you heavily into borrowing condition unintentionally which in fact again harm your credit rating. So you should always be careful to utilize your credit card limit calculating your repayment capacity within your budgeted amount.
So if you are planning to issue a credit card for yourself, don’t forget to stay within your monthly budget. Don’t use it for your every day and unnecessary expense but rather use it for your emergencies and necessities. And lastly, always pay off your full credit balance monthly or within prescribed date to avoid interest and score higher credit rating.
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