How Do Credit Cards Work: Nowadays, people prefer plastic cards instead of carrying hard cash in their wallet. These cards are very convenient to use and are safer than the cash in hand. With these cards, you can perform all kind of transactions for paying bills, purchasing items and services etc. The reason why people are now considering these cards over cash is that it is safe, convenient and easy to use and the best part is that all these cards are very fast in performing several transactions.
Also Read: How Many Credit Cards Should You Have?
Today, we are going to discuss one such plastic card i.e. Credit Cards. Well, we all must have heard about credit cards but many of us don’t know what exactly a credit card is and how it works. Therefore, we are here to help you out and will try to cover every important detail that will let you know how credit cards actually work.
Also Read: Samsung Pay vs Google Pay
What is a Credit Card?
Before starting anything further to know how credit cards work, first we must know what exactly a credit card is. As we have above mentioned, a credit card is a plastic card and it has been issued by a financial institution or the bank to its owner or cardholder. The credit cards basically let the cardholder to borrow money from the card issuer for making purchases.
Basically, the credit card includes the information that has been encoded in them via a magnetic tape short strip that links or connects them to your account or a credit card. That data chip includes all the major information which can be detected by the credit card reading device that who the owner is, their account details, and so on. At the time of purchase, this encoded information has been used by the sellers or traders for processing the purchases as well as charge them to your credit card account.
Credit Cards: Where you can get It?
Credit cards can be easily accessed or issued from the banks and from any other financial institutions or companies. There is a wide range of credit cards available which can be selected as per to your credit needs that can suit your requirements.
Even several large stores or chains are nowadays offering their own credit cards through which they often offer many discounts or rewards to their loyal customers. These type of credit cards are very easy to be approved, however, these are mostly limited to selected stores or retailers.
How Do Credit Cards Work?
The credit card is basically tied to a credit account that has been working as a borrowing tool as well as a form of debt. However, a credit card is not like an instalment loan, but more of a form of revolving credit. In simple words, in spite of borrowing the whole sum amount at once like a loan, you just borrow as you use with a credit card.
Credit Cards are also very different from a debit card, which deducts the amount of money from your bank account. But, credit card bills you later after a pre-determined period of time, till then the cardholder uses the issuer’s money.
So, whenever you are making some transaction through the credit card, that’s not your money but instead, the issuer’s money. The process where you receive the credit bill after the specified time period is termed as Billing Cycle. There’s a pre-set duration throughout which you can make purchases with issuer’s money but after that time period is over, you are going to get a bill, and will also receive a one month time period to pay that bill.
One must take note, every credit card account comes with a credit limit which is the maximum amount that the issuer will lend you to spend or borrow through the credit card. The credit limit has been earlier determined by the issuer before issuing the card to the cardholder.
Is Credit Card a Good Choice?
Credit card is a powerful financial tool for making any kind of transactions or payments and is very convenient to use as well. There are many benefits related to these cards, however, if you don’t pay your credit card bills on time then this might lead to debt. When you don’t make the minimum payment by the statement due to date then the late fee has been charged by the issuer. The late fee amount can differ from issuer to issuer. So, you need to avoid late payments, but if you make your payments on time then there’s no issue about that.
If you successfully maintain a good credit card payment history then this might help you to get future loans from the banks or any other financial institution as they check your credit score before approving or lending loans. Therefore, credit cards can also help you out with that if you pay accordingly on time. Additionally, there are many types of credit card varieties and among those, some also offer once a year payment which can be quite convenient, therefore, you can also choose accordingly.
In this digital era, we all know that online payments are way better than handling cash everywhere. Credit Cards also help you out here as it is very light, easy to travel and is capable of making payments online very fast. So, if you want easy handling of your sending then credit cards are the best option for you.
Credit Cards are a modern solution to spending money or making several transactions. These plastic cards have become very popular across the world that now almost every outlet accept credit card payment even online platforms as well. There are many benefits to have a credit card in your pocket, you can build your credit, earn amazing rewards, get shopping benefits and travel perks and so much more. Credit card is a really powerful financial tool and should be used wisely. We hope, this crucial information on credit cards must have enlightened your knowledge regarding these plastic cards. Ask us anything in the comment section if you have any queries regarding credit cards, we will try our best to answer your question effectively.