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BASICS OF A CREDIT CARD
A Credit Card is nothing
but a plastic card which allows you to
but things that you need, now and pay
for them later. This is why they are so
popular. However, you just cannot go out
there and start shopping with the credit
card with out any limit. You have
something called as the credit limit.
You can make purchases using your credit
card only till you reach your credit
limit.
The credit card companies
will charge you interest on the credit
balance that you have with the card. So,
as long as you pay those interests
properly and on time and also you do not
reach your limit, every thing is fine.
But it is always better
for you to have a proper understanding
about the technicalities of the credit
card. Below are few of the most
frequently asked questions regarding the
basics of the card.
1)
What is interest?
It is nothing but money that you have to
pay to your creditors for the money that
they have given you.
2)
What are these percentages and “interest
rates”?
“Interest Rate” determines how much
extra money you have got to pay to the
credit card company for the credit that
you availed from them. It is a
percentage relating with the outstanding
balance that you have. It is mostly
called as the Annual Percentage Rate or
APR. The lesser the rate, the lower the
interest you have to pay.
3)
Why should any body choose to use credit
card that has a high APR?
Most people do not make such a choice.
It is the bank that decides the interest
rate based on your credit report. If you
pose higher risk then you will have to
pay a high interest rate and vice versa.
This is why having a good credit report
is very important.
One reason why people themselves choose
a card charging high interest rates is
because such cards offer privileges or
rewards which will benefit the holder.
Therefore, these special perks will
cancel out the effect of the high
interest rates. However, this is not
suitable for most of the people.
4)
What is “Outstanding Balance”?
It is the total amount owed by you to
the credit card company. It includes the
money that you actually spent and also,
the interest that is charged by the
credit card company for what you spent.
5)
If I pay the thing called as “Minimum
Payment”, then is I ok?
That something, is the lowest payment
which you have to make to the credit
card company towards your credit
balance. It varies every month as it
depends on your credit balance. Paying
just the minimum balance is legally fine
but habitually very dangerous. Most part
of the payment will go towards the
interest and therefore, your credit
balance will decrease only very lightly.
Therefore, try to pay much more than the
minimum payment or even better, pay your
entire credit balance and become debt
free. |
