You take your colleagues out for dinner to a fancy restaurant. The bill arrives and it is more than what you had expected. You do not have the required cash with you. What do you do? You charge it to your credit card.
A credit card is a small plastic card that allows you to borrow money from the bank to pay for your purchases, be it for buying a meal or booking flight tickets to London. All you need to ensure is that the money is paid back to the bank on time. Credit cards can act as a money-saving tool if you stay within your limits or it can land you in debt if you spend incessantly. One of the biggest mistakes people make is they avail a card without knowing exactly how to use it. Lack of proper knowledge about how the card functions is detrimental to the financial status of an individual.
HOW CREDIT CARDS WORK?
When you apply for a new credit card, the bank will assess if you are financially eligible to own one or not. If you have a good credit score i.e. above 750, a bank is highly likely to approve your card application. Once your request for a new card is accepted, the bank or credit card company will issue the card after setting its credit limit. Credit limit is the maximum amount you are allowed to spend on a single card.
After attaining the new card, you can use it for making payments on credit. Every time you use it, you are essentially borrowing money from the bank. The bank or the credit card company will send an itemized bill each month of everything you have charged to the card. To avoid paying interest, you must strive to clear your whole balance within the grace period that is provided by the company. Also, keep in mind that if you have exceeded the credit limit, you will be required to pay a penalty.