Adding a credit cards to your pocket seems exciting as it offers leverage to buying your things without asking for money from anybody. It helps you to build good financial health and meet everyday expenses. Indeed, revolutions always bring some drastic changes in our lives, some count as positive, and some put negative impacts unless you have complete information. Similarly, credit cards help in bringing financial freedom to our lives when you know how it works and how can you use your card precisely.
Besides purchasing something, credit cards offer flexibility and the opportunity to save money in terms of cashback or rewards. Ensure to not confuse credit with debit cards; both cards work adversely and offer different zones for money investment. Besides, go through the following points to get more understanding about credit cards:
- It comes with a certain limit to make the purchases that you can pay later.
- If you don’t pay the amount timely or carrying the balances from one month to another, then you have to pay the interest.
- Importantly, read the promotional offers carefully to avoid any unwanted deductions.
- Due to certain offers, you will get a chance to earn rewards on your purchase in form of cashback or points.
How does a credit cards work?
Undoubtedly, credit cards provide more flexibility to expenses and help to make a better decision related to your investment. If you really want to use the complete benefits of this plastic card, be wise to gather all relevant information. In that case, it is good to have a view of how a credit cards works.
- People use credit cards to make online or store purchases and pay bills. Whenever you make any transaction from your card, the details of your card are sent to the merchant’s bank.
- Now, the bank is authorized to process the transaction. After the verification f your information, the card issuer either declines or approves the transaction depending on the status of your card.
- Once the transaction is approved, the decided amount is transferred to the merchant account and your card limit gets reduced.
- The complete details of all the transactions for the month will send to you at the end of the billing cycle. This statement also shows previous as well as new balance, describing the minimum payment and the due date.
- Do you know about the grace period? It reflects the time between you make a purchase through your card and the deadline mentioned on your billing cycle. If you make full payment by the due date during this period, you won’t have to worry about interest charges.
- In case, if you carry a balance for next month, you have to pay interest accordingly. Here, you need to understand APR (annual percentage rate) that includes both interest rates and other costs.
- One thing is important to note that many cards are available with variable APR, connecting with the prime rate. It also suggests that APR can change over time. Although, there are strict guidelines set by the CARD Act of 2009 for not exceeding the rate on the credit card.
Differentiate a credit card from a debit card
As you know, a credit card gives you the liberty to spend money even when you don’t have a balance in your account under certain terms and conditions. It provides a line of credit to make awesome purchases, cash advances, and balance transfers with pay back the amount in the future. For paying the money, you have a grace period and due date according to your billing cycle. If you don’t pay the full amount and carry a balance for another month, the interest rate will be charged.
In opposite, a debit card helps you to withdraw money from your saving amount. It is not a kind of loan or no interest is charged. Through your debit card, you can make online as well as offline purchases, balance transfers, and other payments against the amount you have in your account. Moreover, you don’t need to pay any monthly payments with your debit card.
Impact on credit score
The more crucial thing to keep in mind while differentiating debit and credit card is that activities on credit card put a direct impact on your credit score where as no impression is made by debit card on your score. If you pay your bills timely and make the right use of your credit card, you will put a positive impression on your credit score.
Enjoy shopping and financial flexibility using a credit card but make sure to pay your bill wisely so you won’t face any stress.