Credit cards – Let’s understand them better

If you have a clear idea about how credit cards work, you will be able to unleash its true potential.

Credit cards – Let’s understand them better

When a credit card is used wisely, it becomes a flexible and safe way to make payments. However, you must remember that you will be receiving a bill at the end of the month or bill cycle for all the purchases made using the credit card. If your bill amount is too high or you only clear the minimum dues, credit cards can prove to be pretty costly.

If you have a clear idea about how credit cards work, you will be able to unleash its true potential. A credit card can only be the best for you when you use it prudently and to its best.

How do they work?

Simply put, a credit card is something that allows you to spend money and buy products on credit. Most credit cards come with a pre-defined limit which can vary for different individuals. There are several factors that determine this pre-defined limit of your credit card.

In case you clear your entire credit card bill every month, you will not have to pay any interest amount to the lender. However, if the outstanding balance is not cleared in full, interest will be levied on whatever amount is left to be paid. The cash withdrawal feature is extremely beneficial in certain situations, but do not get tempted by it as it attracts high interest charges.


Ensure that even during the interest-free period, you at least clear the minimum dues every month. Setting up a direct debit from your savings account is advisable so that you can clear out the dues in full every month. However, if that is not possible you should try and repay as much as you can. This way, you will not miss out on your monthly payments and no penalties will be charged. Your credit rating will also shine bright like a diamond if you regularly clear your credit card bills.

A credit card assessment will be carried out by the provider of the credit card when you apply for one. If you have a good credit score, chances are that your application will be accepted by the card provider. Depending on how good is your rating, you will be able to enjoy promotional offers and lower rates of interest. You should be at least 18 years of age to apply for a credit card. For certain cards, you must be at least 21 years old to apply.

Why is a credit card a man’s best friend?

Easy to use, easy to carry – Credit cards are accepted at almost all purchase terminals like stores, restaurants, theatres, etc. Since it is just a thin plastic card, it slips into your wallet way better than a bunch of currency bills.

It’s the safest bet – In case your wallet gets stolen with your credit card in it, you can simply call the issuer bank’s customer care to block the card. The same cannot happen when your currency bills are stolen. In case if your card is stolen and used for fraudulent activities, you will not be held responsible and will get your refund from the issuer.

Purchase now, repay later – if you wish to make a purchase but you are out of money, a credit card can easily help you out in such a situation. However, ensure that you repay the outstanding amount when the next payday arrives or you get substantial money.

Freebies – Credit cards often offer amazing freebies like cashback, air miles, and reward points. May it be shopping, dining, travelling, etc. these freebies always prove to be of great advantage.

Fees and charges

You must be really careful while using a credit card, there are so many ways in which you can incur charges. For starters, watch out for the rates of interest associated with your credit card. If you are unable to repay the entire outstanding amount on your credit card, you will be subjected to a hefty amount of interest.

All the new credit card customers must understand the introductory rate that they get might not cover both purchases and balance transfer. Balance transfer rates are always separate from the credit card purchase rates. The new customers must also check the actual rate that they have to pay after the introductory rate period is over. In case if you wish to transfer balance from one credit card to another, a certain fee will be charged. You must calculate whether paying this charge and transferring your balance to a card offering lower rates is actually worth it or not.

A late payment fee will be levied if you make the credit card bill payment after the deadline for that month. Late payments can also result in withdrawal of an introductory offer. Your credit record will also take a hit and will reflect badly when you apply for a loan to some other bank or lender.

When you get your bill at the end of the monthly cycle, you can either choose to clear the entire debt or pay the minimum due amount only. It is advisable that you clear the entire amount or as much as possible. If you just keep paying the minimum amount, you will end up paying more than you borrowed in the long run.

Credit cards and debit cards don’t work in the same manner. Cash withdrawals using a debit card is generally free. Even if there is a cost associated, your debit card issuer will let you know about that. However, when you withdraw cash using your credit card, you are instantly subjected to high rates of interest calculated on a daily basis. Other transactions like buying gift cards or foreign currency using a credit card can also levy high interest charges.

Bottom line:

Credit cards are truly amazing if they are chosen and used as per the spending habits of the card holder. There are so many credit cards present in the market today. It is advisable that you carry out both qualitative and quantitative research before you pick one for yourself. Understand that there is no best credit card available in the market. However, the right credit can definitely prove to be the best for you.

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