Credit Cards 101

Credit cards are one of the non-cash means of payment. They usually come in the form of a plastic card. Credit cards are usually issued by banks, stores and other legal entities that can provide credit.

Some credit card providers charge monthly or yearly fee that covers the service of account management.

After a person completes a purchase by credit card, it becomes payable after the grace period during which a financial compensation is not charged. After this period, the minimum due amount must be paid in whole or in monthly installments with certain interest. This credit is known as revolving credit.

Some credit card providers charge interest from the date of purchase regardless of whether the cardholder has funds in the amount of the cost on their account. Credit card interest rates, annual membership, interest calculation and conditions and terms of debt repayment may be different from card to card.

Advantages and disadvantages of using credit cards

Credit cards come with many advantages and few disadvantages. If the cardholder understands their obligation and uses the card responsibly then credit cards can be very useful and the drawbacks that they can expect will be minimal.

Advantages

  • People don’t have to carry cash
  • The possibility to buy the necessary services and goods right away
  • Credit cards are very simple to use and practical
  • People don’t have to take cash when traveling abroad
  • People can analyze their purchases because they’ll have access to the records
  • Some credit card issuers provide loyalty points and other incentives and benefits

Disadvantages

  • The price of a product can be increased if the cardholder has to pay interest for a longer period of time
  • The number of situations of impulse buying can be increased

How to choose the right credit card?

The best way to take full advantage of credit cards is to understand your personal lifestyle in financial terms. People who have finished with this step should take few other things into consideration.

First of all, they need to focus on interest rates on an annual basis and whether the rate is fixed or variable. This will help them calculate their yearly expenses on interest rates.

Furthermore, the annual fee default interest rate and overdraft fee can also vary from card to card and that’s why people need to pay close attention to these values. Finally, things like credit card limit, grace period before the start of interest calculation, incentives and cash refund options are some other elements that can help prospective cardholders to select the right credit card for them.

It is good to point out that some credit card issuers provide free service of sending automatic, personalized SMS or email messages that allow people to monitor their current balance, due dates, current payments and withdrawals and online purchases.

There is no doubt that credit cards are very useful and the fact that about 70% of American households have at least one credit card confirms that.