Things You Should Know Before Getting Your Credit Card.
Credit cards are becoming a necessity in individuals like. The credit card industry is growing multiple times with revenues rising every year. Credit cards give an individual free credit to use without worrying about the balance in the bank and at the end of the billing cycle we will be issued the statement which includes all our spends and the due amount need to be paid before the deadline specified. If you are planning to own a credit card, then this article of things you should know before getting your credit card will help you understand a few things.
Credit cards business is booming. Credit cards in reality provide a lot of benefits to the users but if used rationally. Care must be taken on the spends and the amount you are spending each month. Usually, Credit card companies provide huge credit limit for an individual which encourages him to spend more than what he earns and later at the end of the month he has to do something to pay the huge debt burden on him.
We have detailed all the Pros and Cons of Using a credit card and how can one make the best use of credit cards. You can refer to understand what are all the benefits which make individuals to own different companies credit cards.
Advantages of using a Credit card
- Companies which are issuing the credit cards, wither it can be a Bank or any other 3rd party, provides lots of offers to the users while shopping online or offline store and pay with their credit cards. These offers may change from time to time but individuals who do shopping regularly will benefit from these offers.
- Using a credit card will also give you reward points and types of points like loyalty points which the credit card company provides based on your spending each month. You can use these points to shop online or to convert them to monetary equivalence.
- Using a Credit card will start your credit score with central credit rating agencies. If you use your credit card ethically and pay all your bills regularly, you will get a good credit score which will help you in getting the loan at a lower interest rate.
- Insurance and other things that are provided by the credit card companies. These are not available for debit cards and are exclusively available for few credit cards.
Interest rates
At the end of the month after using a credit card for all your spends throughout the month, you will receive credit card statement and this includes all your spending details and the amount that you need to pay. This amount usually needs to be paid with next 15 -20 days. The date before which you need to pay the amount also will be mentioned.
But if you fail to pay the fees before the due date, you will be liable for interest to be charged on the pending amount. The interest charged by credit cards is very high and that will increase your debt multiple times. Usually, the interest rate will be somewhere around 24%-30% and this is compounding interest and hence your debt will increase with the time you delay paying the dues.
This Interest charged will be revenue for the credit card companies. It is on which the companies survive in addition to some other revenue sources.
Other fees
In addition to the interest charged by the company, there are other charges which are included in using a credit card.
Most common fees charged while using a credit card is the joining fees. Usually, all major popular credit companies charge a joining fee which is mentioned to you before issuing a credit card to you. This joining fee depends on the type of credit card you are taking. Credit cards with a lot of offers and benefits will have high joining fees and credit cards with fewer benefits will have less joining fees. There are credit cards with zero joining fees also.
In addition to joining fees, credit card companies also charge annual charges. These annual charges also depend on the type of credit cards. There are also cards with zero annual charge, but these cards have no or fewer benefits. Some credit cards offer an extra benefit to the users to waive off the annual charges if the user spending in the previous financial year is more than a prescribed limit.
Late payment fees are another charge that needs to be understood when using a credit card. In addition to the interest that is charged when you delay payment of dues before the due date, you will also be charged with late fee payment. Combinedly the late fee payment and interest amount will increase your Debt burden many a time.
Minimum Payment and due Amount
When using a credit card at the end of each billing cycle you will receive the credit card statement. This statement includes all the details of your spending in the previous month. It also includes 2 important things. The minimum amount due and the total due amount.
Minimum due amount is the minimum amount you are mandated to pay before the due date. This minimum amount cannot be delayed beyond the due date. If delayed you will be considered as defaulted payments.
By paying the minimum due, you can pay the remaining amount of the total due with the next billing cycle provided that you are ready to bear the huge interest and late fee payment charges that will be charged to your next statement including all other charges if any and taxes.
Credit Score
Using a credit card will start your credit score with the credit rating agencies. These agencies will collect your credit data from all the financial institutions and will assign a score based on your usage. If are regular with your credit card payment and are rationally using the credit card, then your credit score will improve.
If you wanted any loan, with good credit score banks will be ready to provide you loan at a low interest rates.
But if you delay payments of default payment, your credit score will be affected largely and it is difficult to bring back the credit score to a good level and takes a long time.
Bottom line – Things You Should Know Before Getting Your Credit Card.
Things You Should Know Before Getting Your Credit Card: Remember that credit cards are an excellent instrument in daily life. They simplify the payments and provides with a lot of benefits for users. But everything comes with a price. Rewards are followed by Risk. Due to long limit provided by the companies, individuals usually spend until their limit is over, which is mostly more than what they earn making them increase their debt at the end of the billing cycle.
Hence it is important to carefully use the credit card to reap all the benefits they are providing for users.
