To understand how credit card work and how you can use it to your advantage, you need to understand certain terminologies. We will be highlighting and explaining what some of these terms mean.
Your credit card issuer usually sets a limit on how much that can be charged on your card. The limit on your card is dependent on your ability to manage debt.
Your monthly payment is the minimum amount you are expected to pay on your balance every month., it is however advisable that you pay more than the minimum amount monthly. This will help you to avoid additional interest rate charges. This amount is the minimum amount you are required to pay to keep your card active. If you pay less than this amount, your credit card issuer will turn off your card or deactivate it.
The grace period is that time you have to pay your bills in full so that you do not attract charges. When you pay in full within the grace period, you will not have to pay finance charges on that bill. This period can be up to 25 days.
This is the fee that applies when you do not pay your bill on the due date. It is the day your grace period expires. You will be charged a late fee, if you pay after your grace period has elapsed. The late fee can be as high as $35.
When you use your credit card, it is more or less like you are borrowing money. Hence, you will be charged interest if you fail to pay your bill fully. Your credit card rate can be between 18% to 25% depending on your credit history. Also, with a credit card, you are paying for convenience.
Secured credit card is meant for people with poor credit or without any credit history and there are some banks that offer it. People in this category will be responsible for only the first $50 of unauthorized charges. Always keep your credit in a safe place so that it is not stolen.
On the other hand, a debit card does not offer this extra protection like credit cards. The way most debit cards work is like writing a check, where the money is deducted immediately from your account. You need to check your statement regularly so that you can report any false charges. Any false charges not reported within 60 days of receiving the statement means you will be held responsible for such charges. Hence, it is important that you are aware of all the implications of getting a debit card.
Your credit reports capture your payment history, a record of borrowing, and paying the debts. It is a report that shows your financial responsibility; how well you pay your bills, debts, and other expenses. A good credit report will always work in your favor as you will be able to get loans and get it at even very low-interest rates.
If your credit card is stolen or lost, you need to report to your credit company as soon as possible.
Here are some of the terms you need to understand when you get a credit card that you can use for purchases. Knowing what these terms mean will help you to utilize your credit card to your advantage.
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