Credit cards are financial tools that were initially invented to help individuals cater for various economic issues. However, if these cards fall into the hands of people without self-control, they end up being dangerous because they might ruin one financially. Before you register for a credit card, you need to know what it is all about and why people prefer it and how others fall into debts via credit cards.
What is a credit card?
Apart from its natural look, a credit card represents a type of a loan from a banks account that you can use to pay for other goods and services without using your own money. In short, a bank offers you money to pay for whatever you want by using its own money. The credit card is used to access the amount that has been allocated to you by the bank. In return, you have to pay the bank back with a particular percentage interest. Paying back is where most people fail and tarnish their credit score.
How credit cards work
When you want to purchase or pay for something using a credit card, the one handling the payment first contacts the concerned bank to inquire if the payment can or should be allowed. If the verification goes through, the card is swiped. The cardholder receives a monthly bill of all the swipes that have been made and the interest that you are required to pay.
Late and timely payment
The bank sends you a monthly bill which you are required to pay. Some people take credit cards with no intention of paying back, and then there are those who pay but always make late payments. But others always pay on time. Paying on time is good since the responsible bank will give out a good credit report on time. For those who pay late, they have to pay more but this category of people which enable the bank to make good profits.
Why some people prefer credit cards, and others do not
A lot of people prefer credit cards because you can make a purchase that you cannot afford if you were to use cash at that particular time. The bank determines your credit limit before allocating money to your card. However, if you want to make a purchase that is over your limit, the bank sometimes authorizes the purchase. This is because there is an extra fee charged, apart from the ordinary profit, that one is charged for surpassing their required limit which helps them earn more money.
Though credit cards are convenient in every sense of the word, some people prefer not to apply for one simply because it is hard to control oneself when it comes to spending. As stated before, one can purchase something that if he were to use his cash, it would be hard to afford. With money, it is hard to spend more than what you have hence once can be disciplined o financial spending.
Benefits of credit cards
- You enjoy purchase power-With credit cards you will enjoy purchasing things even when you do not have cash. This also come in handy when you go to stores that do not accept cash payment or if you do not like carrying hard cash.
- Credit cards serve as evidence of purchase. This can be proved by the statement you will receive from your credit card company. In case your purchase is damaged, lost or stolen, the proof that you bought it can serve as a benefit especially if you had it insured.
- Improves your credit score- If you make timely payments on your credit cards, your credit score will go up. This means that if you ever need to get a loan from any other financial institution, it will quickly go through once your credit card companies prove that you a trusted borrower.
- Improves your credit score-When you get a credit card, you are advised to spend it wisely. However, though not in the list of your budgeted expenses, emergencies may arise when you are in a tight position, money wise. With a credit card, you can quickly pay for most of the contingencies.
- You enjoy credit card benefits- Some credit cards companies offer their clients attractive benefits. For instance, with some companies, you get discounts on travel and from other stores.
Safety tips for credit cardholders
Financial fraud is on the increase worldwide, and because of that, people should take caution and protect their cards. New credit card holders are registering every new day, which calls for a better reason as to why people should be informed on their safety. Some of the essential tips are as follows.
- On receiving a new card, the first safety precaution you should take is signing at the back of it. When it comes to your pin, always protect it. It is never wise to store your pin the same place with your wallet because if it gets stolen, the thief will not only have the card but the pin too.
- Always keep your account number and pin as private as possible. Unless you are talking to authorized people from your bank, never speak or give out any information about your card through any other means. Always prefer digital means to receive your accounts details from the bank as getting via hardcopy might see your information on other people’s hands.
- Keep updating your information whenever possible. If you move to your new address or change the phone number or email address that the bank has, remember to update it. This helps you get any necessary information that is sent to you and avoids your information landing into the wrong hands.
- If or when you lose a card, always report it. When you do, the credit company will block the lost card and issue you a new one. You are advised to act quickly and report immediately because fraudsters also do the same if they get their hands on your card.
- Now and then, keep checking the activities going on with your bank. This helps you know if everything is as you expect but if not, report the matter immediately
- Online purchasing is on the rise, and without proper care, you might give your info to the wrong online sellers. Before you make any purchase online, always verify if the merchant is a trusted one before paying.
- The last safety tip is about your spending. With credit cards, one can easily be carried away and end up making huge mistakes. Be a responsible person and never allow yourself to be a window shopper. Do not over buy or go beyond your budget. This enables you to buy only what you need and what you can manage to pay for