Credit cards are payment cards issued by financial institutions which are mainly banks or other financial services providers. Using the card enables the cardholder to borrow money from the financial institution or issuer. With this action, the cardholder agrees to pay back the money with any accrued interest and charges. This is based on the agreed terms and conditions before the card is issued.
Typically credit cards are akin to small consumer loans. They provide the user with a line of credit that they can use to pay for goods and services they need now. The issuer or financial institution pays for the product in the interim. The cardholder then reimburses the issuer with the money alongside the associated charges and interests.
It can also be used as a form of cash advance that requires you to pay back the money shortly. As a credit cardholder, you need to make the minimum payment by the time it is due every month at least. If you do not pay off the full balance of your purchases, it will attract interest charges.
Bear in mind that asides from the interests and charges, credit cards may come with an annual fee. This is often dependent on the issuer and/or the type of card and it can vary. Also, if you make your payments late, you will likely be charged for doing so.
Some cards may also have fees like foreign transactions charges, cash advance charges, etc. You will find more information on them in this article.
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Reasons To Own A Credit Card
Many benefits come with owning a credit card. You will be able to get discounts on a lot of products and services. You will also get cash backs, bonuses on flights as well as cancellation insurance.
It is also a good way to pay for an unexpected bill especially if you find it difficult to pay in the immediate. These reasons are explained in greater detail below:
Access To Emergency Funds
One thing that you can be sure of with credit cards is that you will not lack money to spend. They act as a financial buffer and come in very handy during periods of emergency. You may have an emergency or immediate need and your payday is still a long way out. Having a credit card provides a way to meet this immediate need without having to suffer the consequences of not having money.
It Helps To Build Up A Credit History
Having a credit history is an important part of your life. This is because it is required when you want to take loans especially for major projects like a home loan. A credit history is a report that reveals data about your financial health and conduct.
This helps creditors and lenders to easily know your risk profile when you apply for a loan. It includes the history of loans that you have, if you pay on time, late payments and other information relating to your finances. This report is also used to calculate your credit ratings or score.
Owning a credit card is a great way to build your financial history. When you have not taken a loan before or you do not have a credit card, this information does not exist. This will make lenders and creditors wary of lending you money as they cannot place where you stand financially.
By getting a credit card, you can begin to build your financial history when you use it. It is however important that you build a positive and credible history. You can achieve this by ensuring to pay up whatever you borrow on time.
It provides Better Security on Your Purchases
You can pay for goods and services in several ways. You can pay through cash, via a debit card, or through your credit card. Paying with a credit card has a distinct advantage over paying with cash or a debit card.
This is because it offers a better guarantee of security on whatever you pay for. The responsibility lies on the seller and the card issuer to ensure that you get whatever you pay for. If you purchase an item and it is faulty or not delivered, the creditor or issuer will be responsible for the payment.
They can easily make claims and ensure that you either receive the products in good condition or the money is refunded. They may be able to provide insurance and warranties on the products that you bought in case of theft, loss, or defect.
This is essence means that the creditor bears the risk instead of you. However, if you are paying with your debit card or cash, you do not have this security. Rather, you bear most of the risk and when anything goes wrong, you are not guaranteed to get your funds back. Even if you do, it might take a while before you do so.
You Get Fixed Discounts
You can get a credit card with fixed discounts especially if you like to shop online or travel. Often this discount amount has no amount limit like cashback. This means you can save money on a variety of purchases such as travel and grocery shopping. You can also get free travel insurance and so on.
Additionally, you can get discounts on fuel. You can learn more from this kredittkortinfo – bensinkort (gas card) which can save you money over time especially if you drive a lot. You may also get discounts on paying for utilities and car rentals.
You Get Cashback
When you use your card to pay for a product, the issuer receives a commission from that point of sale. The creditor is willing to share a part of this commission with you as their cardholder. They use this as a form of marketing strategy.
This means that the more you use your card, the more you can get part of the money you spent back. Bear in mind though that there is a limitation on the amount that you can get back. When considered in isolation, the sums do not look large but when they accrue over time, it can be a large sum.
You Have a Better Overview of Your Money
The beauty of credit cards is that you do not pay for goods and services directly from your account. You get to pay at a later date so you do not bear a large chunk of the risk. This gives you time to go through all the transactions made within a given period before taking over the expenses. If you notice any irregularities, you can dispute this and take it up with the issuer.
Note that when you use a credit card, you have to pay whatever you spend back by the due date. This includes the interest and any other charges involved. Also, because these loans are short-term loans, they have high-interest rates.
You can have more than one credit card but ensure that you are a disciplined user. Look out for discounts and cashbacks. Try to build a positive credit history by not racking up debts that you will find difficult to pay. If you think that this can be a problem, it is better to choose a card with a low-interest rate.
Furthermore, credit cards typically come with interest-free days or grace periods. This is when you do not pay any interest on whatever amount you spend as long as you pay back on time. Most creditors offer a grace period of 45 days but you may be able to get more than 50 days with some issuers.
When it comes to paying for a wide range of goods and services, credit cards come with a ton of benefits. It offers you the opportunity to get whatever you need even when you do not have money in the immediate.
It also helps you to build a financial history while providing security on purchases and various discounts. You are also able to better manage your finances. What is expected of you is that you live up to your part and make necessary payments as at when due.