Just In: Understanding Salient Concept Of Credit Card

Jennifer Akamanu

 

A credit card can used to make purchases, reduce the cost of expensive debt or to earn rewards and cash-back.

It is essentially a type of loan, where the money you spend on your card is borrowed from a lender, such as a bank or building society. Interest is added to the amount you spend if you do not clear your balance at the end of each month, according to http://www.moneysupermarket.com.

How credit cards work

When you apply for a credit card, you apply to borrow money from the card issuer, usually a bank. The issuer will look at your credit history before it accepts your application – and if you have a low credit score, you could be refused credit, or perhaps given a less attractive deal.

If all is well, the bank will set a credit limit, which is the maximum amount you can spend on the card.

The card company will send you a statement every month, detailing the transactions on the card, plus the amount owing.

It will also provide details on the minimum payment you need to make and the payment due date.

Borrow money for nothing

Most credit cards come with an interest-free period of some days. In other words, as long as you clear the balance in full when you receive your monthly statement, there will be no interest to pay.

If you are looking to make a big purchase, then a credit card with a zero per cent interest rate for a specified period is what you need. It is possible to get a card where no interest is charged for over two years. Once the interest-free period comes to an end, you will then start paying the interest of some percentage – although one option would be to transfer the outstanding balance to a new card.

 

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