Credit cards are economic instruments that can help you borrow money with out interest for a stipulated time. They’re pretty famous in particular as a result of the benefit they offer in making payments. However, if used irresponsibly, they could cause quite a few monetary pressure.
It is critical to know how credit cards works earlier than you apply for one. Here are 10 things about credit cards you should know first.
It is not free
Credit cards can come with a bevy of charges like joining fee, annual fee, card replacement charge, statement fee, and so on. These charges range based totally at the issuer presenting you this provider. If you are a primary-time credit card user, selecting a card with 0 or low becoming a member of and annual charges is really helpful.
Credit cards work as short-time period loans which attract no interest , so long as the amount due is paid fully on time. Normally, this interest-free period is up to 50 days, which means you have 50 days starting from day one of your credit cycle to pay off dues. If you omit the repayment deadline, you may be charged a late fee and/or interest on your outstanding bill amount.
Every credit card has a fixed usage limit, that is the most quantity that can be charged to the credit card at some stage in one credit cycle. The credit limit offered can vary based on factors like the cardholder’s credit score, payment history, income, and credit utilization ratio. For first-time users, this limit can serve as an effective barrier against overspending. In case you use your credit cards accurately and settle your bill on time, your bank can also provide to increase your credit limit.
Minimum amount due
At the end of your card’s interest-free period, you should pay either the whole tremendous due or the minimal amount due (mad). The minimal amount due is normally 5% of the outstanding invoice amount. While paying the minimum amount due can keep the credit card active, interest will maintain to accrue at the outstanding balance.
It is really helpful to pay the total outstanding amount by the due date. If you are not able to accomplish that, request your provider to convert your o/s balance into affordable equated monthly instalments (EMIs).
Credit card statement
Be aware of your monthly credit card declaration. It includes vital utilization-associated details such as purchases, credit, minimum quantity due, interest payable, late payment, and the payment due date. Going through those information can help you spot any transaction mistakes.
Apprehend your credit card’s billing cycle to maintain track of due dates and avoid paying overdue price or interest. For example, in case your credit card announcement is generated at the second of every month, it manner your credit cycle begins from 3rd of the previous month and ends on the second of the current month. You may get 50 days from the begin of your billing cycle to pay the amount due. In case you miss the reimbursement closing date, you will be charged a late charge charge or interest on the entire extraordinary quantity.
Rewards and cashback
Credit cards improve your buying enjoy with cashback gives and rewards. With ordinary use, you may earn reward factors or avail discounts at selected retailers. Reward factors let you save on habitual prices like grocery purchasing, journey, and eating. But, they come with an expiration date which will be noted for your bill declaration. Examine your charges to pick out a credit card that is aligned together with your wishes.
Cash withdrawal facility
Just like debit playing cards, you may additionally use your credit cards to withdraw cash from atms. However, cash transactions start accruing interest from the minute you withdraw, with rates as high as 3.5% / month. Considering this, it’s far really useful to assess your cash needs before making a withdrawal.
Annual fee waiver
Credit cards usually come with annual fee which may be waived if the cardholder spends a fixed amount using their credit card in a year. The amount may vary based on their credit limit.
Credit score building
Responsible credit card usage is an effective tool to build your credit score, which can affect loan applications you make in the future.