How Does Credit Card Works

How does a credit card works? To start with, there is a big difference between a debit card and a credit card. A debit card uses the money you have in your account to pay for things you want to buy. A credit card works in such a way that you are allowed to spend money that you don’t have yet and then you pay it back with interest in little bits. The amounts that you pay back are preset. After that, you also get a bill for what you have spent every single month.

Note that you must always make an effort to pay back the balance each month. The least amount that you are supposed to pay is determined by the company that provides the card. Normally it is at least 1% of whatever is left, (the balance) and then there is also interest calculated on it. There is also an annual fee that is charged for using the card, some do not have a fee, which means you don’t pay any extra money after the interest and the “loan” you are paying back.

If you are able to pay your loan or bill in full before the day you are required to pay off the borrowed money, you don’t pay any interest. Unless you have used the card to withdraw money.

Now, if you are not able to pay it off totally, the company will charge you interest on the amount you have left to pay. This interest is usually calculated from the day you purchased the card.

Before you go in for a card, you must note the following:

Whenever you apply for a credit card, the company providing the card will do some checks on you about how you manage credits. This involves how you manage borrowed money or how you spend money. Should you have a good “credit score” you will stand a better chance of having your application and request approved. This good credit score also grants you the chance to acquire cards that offer the lowest interest rates on the market. There are some companies or providers who also do promotions, some of these promotional cards are given to people with better credit scores. If your credit score is bad, this will negatively affect you and could mar your chances of having your application approved. If the check is a “hard check”, your report is much more serious than if it is a “soft check”

Normally the soft check is a type of inquiry that will not impact your chances more. This type gives an indication of how successful or not your application will be.

Should it be the case that your request for the card is accepted, the company providing the card will first offer you a limit to which you will append your signature. This initial amount can range from a few hundred dollars to thousands.

You must ensure that each month the least amount that you are expected to pay is paid. This must be done even when you are in a period in which you are not expected to pay any interest yet. There are a few methods you can use to pay up your bill or loan. There is something called a “Direct Debit” which will help you to avoid paying penalties. Note that this should be done when you are sure of some flow of funds into your account each month. This method, the Direct Debit also saves you the pain and penalty of forgetting to pay. This will greatly help to also improve your credit rating so you can benefit from any offers or promotional packages available.

Whenever you use credit cards, take note that it is best not to use them to be withdrawing “cash”. This is because of the fees they attract when you are with them for withdrawals. Once you use them for withdrawals, you will be charged some amount of money for using them, also you will pay interest (which is comparatively higher). This is paid daily and is calculated backwards from the very time you did the withdrawal.

Also before you apply for the card, you must be at a minimum age of 18 years. Some card-providing companies even fix the minimum age at 21.