Most financial specialists advise against using a credit card mainly because it results in unnecessary debt if not used responsibly. However, if used only when necessary, credit cards have many benefits. The main advantage of credit cards is that they allow individuals to borrow funds from their credit card companies. Unlike debit cards, a credit card can still allow people to access funds even when they don’t have money in their bank accounts.
Nowadays, many platforms like Creditonline.bg offer excellent online credit card service and comparison information. So you can take a look at the information they provide before opting for a credit card.
Below is an extensive guide on the convenience of having a credit card.
What Is a Credit Card and How Does It Work?
A credit card is a mode of payment that an individual can use to make purchases, pay bills, and withdraw cash (depending on their credit card company). Credit card users can do all this without using money from their bank accounts.
However, credit card companies give their customers a credit limit. This is a specific amount of money they can utilize using their credit cards.
Typically, there are two types of credit cards; secured and unsecured. A secure credit card requires the user to deposit a certain amount of money to their credit card account when they open one. Most credit card companies double that amount as their credit limit.
An unsecured credit card (the most common one) doesn’t require users to deposit any money when opening their credit card account.
So, how does a credit card work? When individuals make a payment or purchase using their credit card, the card details are automatically sent to the seller’s bank. Then, the bank obtains authorization from the individual’s credit card company on whether or not to process the transaction.
If the person’s credit card company approves the transaction, the payment is automatically made to the seller, and the transaction amount reduces the credit card user’s credit limit.
What Are the Advantages of Using Credit Cards?
One of the primary advantages of using credit cards is that it protects users from incurring losses from fraud. Unlike debit cards, if an individual’s credit card is stolen, they won’t lose any money, nor will their credit score be affected. This is because the money used from credit cards doesn’t come from their bank accounts.
Many credit card companies also offer handsome bonuses, especially to people getting a new credit card. For example, some companies offer a $100 bonus or more on an individual’s credit card if they spend a certain amount of money during the first few months after obtaining a credit card.
Credit cards also allow people to build up their credit. Many bank institutions use an individual’s credit card history to determine whether or not they will grant them a loan.
Again, credit card usage is not limited by the amount of money in an individual’s bank account. This means the user can still access funds even when they don’t have money in their bank accounts.
Most credit card companies offer an interest-free grace period where an individual’s outstanding credit isn’t charged any interest. This reduces the burden of having to repay the credit together with interest.
What Are the Most Important Factors to Consider When Choosing a Credit Card?
There are many credit card companies, so an individual needs to have a couple of factors in mind when selecting one. The most crucial factor to consider is the credit card’s Annual Percentage Rate (APR).
An APR is the interest rate charged if a person can’t pay their outstanding credit card amount within the set grace period. So, it is recommendable for people to compare the Annual Percentage Rate of different credit card companies and choose the one that has the lowest rate.
An individual should also consider the annual fee. This is a certain amount of money a credit card company charges credit card users annually for using their credit cards. Again, a person should compare the annual fee of various credit card companies and go for the one with the lowest one.
Bonuses and rewards are also vital factors to consider when choosing a credit card. Most credit card companies offer bonuses to customers opening accounts for the first time. They may also offer loyalty rewards to users after they charge a certain amount of money to their credit cards.
Conclusion
Credit cards come with a ton of advantages. Among them include access to funds regardless of the amount of money in an individual’s bank account, zero liability if a fraudster uses a person’s credit card, and more.
However, users should be careful to utilize their credit cards responsibly to avoid them themselves into unnecessary debts.
