Credit Card: what is credit card?। uses of credit card । how to use credit card ?

What Is a Credit Card?

A credit card is a thin rectangular piece of plastic or metal that is provided by a financial institution or a bank with conditions set by it. Through this card, the cardholder can make online payments anywhere. When a payment is made through a card, the money to be paid is borrowed from the card issuer i.e. the bank and the cardholder deposits this money with the bank along with interest and prescribed charges at specified times.

Banks, while issuing credit cards, fix limits on the amount of money to be borrowed i.e. the usage of the card, such as fifty thousand dollars in a month, etc. This fixed limit is called a "standard credit line". Sometimes a credit card issuer may also offer its cardholders a separate cash line of credit (LOC) in addition to the standard credit line. Money is lent in the form of money and this money can be obtained through ATM. The issuer decides the borrowing limit of the cardholders on the basis of their credit score or CIBIL score. That's why everyone should keep their credit score correct. Most businesses allow credit card holders to make online payments, such as cashback and offers, which have become the most popular source for consumers to buy goods and services these days.

Credit cards usually charge higher annual interest rates, which are higher than other types of loans. Any remaining balance other than the amount utilized on the credit card is added to the credit limit for the next month under 0% APR. Usually, the credit card issuer accrues interest either monthly or daily. If the issuer charges interest on a daily basis, the cardholder has to pay more while if the issuer charges interest on a monthly basis, the cardholder has to pay less.

How many types of credit cards?

Companies such as MasterCard, Visa, Discover, and American Express handle credit card hosting and these cards are issued by a bank or financial institution. Generally, these cards are of 6 types which are as follows : 

(1) Standard Credit Cards:

Usually, this type of card has the highest circulation. In this card, the issuer benefits its cardholder with features such as fraud protection and a rewards program. The credit limit and interest rate are pre-determined on this type of card.

(2) Secured Credit Cards:

No credit history is required to avail of such a card. To get this, a certain amount has to be deposited with the card issuing bank or financial institution and the amount deposited becomes the credit limit. That is why it is necessary to deposit this amount. That the issuer's money is protected when the cardholder is unable to pay for the funds used for any reason. Large payments cannot be made with this type of card, only small payments can be made.

(3) Rewards Credit Cards:

Such credit cards provide facilities like airline miles, gifts to major retailers, cash back on purchases, offer bonus rewards for specific categories of purchases, such as electricity bills, water bills, or online ticket booking, etc. And sometimes merchants also get their name printed on these cards to make their business famous among the customers, this is called branding.  And getting credit for this type of credit card is much easier as compared to normal grade cards.

(4) Balance Transfer Credit Cards:

If you have a loan amount on your existing credit card at a very high-interest rate. So you can pay off the loan at a lower interest rate as well. For this, you have to transfer the balance loan to your new credit card. The bank will charge you a small fee for the transfer. This is also called a balance transfer credit card..

(5) Business Credit Cards:

The business credit card is designed for the small business owner. It can provide benefits like higher credit limits, expense tracking, employee card, etc. Some business credit cards also offer rewards programs tailored to business expenses, such as office supplies or travel.

(6) Student Credit Cards:

Student credit cards are designed for college students who are just starting to build their credit history. Credit cards with lower credit limits and easier eligibility criteria are common. Student credit cards may also offer benefits such as cashback or rewards for purchases made with the card.

How to make a credit history with a credit card?

Building a credit history is essential to qualify for loans, rental apartments, and even some jobs. It's a record of how well you've managed credit accounts in the past, and lenders use it to assess your financial responsibility. If you're just starting to establish credit, one way to do so is by using credit cards responsibly.

When the cardholder uses it responsibly and properly, a positive credit history is built. Because the issuer of the card that the cardholder has submitted the complete details of various types of payments etc. made by the cardholder in the form of a report to the credit bureau. Make regular timely payments, avoid late payments, keep credit utilization under your credit limit, and maintain a debt-to-income ratio to build a good credit history

To build a credit history with credit cards, follow these tips:

• Apply for a secured credit card: If you do not have a credit history, a good credit history can be built by getting a secured credit card, using it properly, and paying it off.
• Use your credit card for small online or offline purchases: After getting a credit card, a good credit history can be built by using it regularly and paying off its debts on time. Credit cards can also be used for small purchases like gas or groceries.
• Make payments on time: If the interest and fees of the credit loan are not paid on time, it weakens the credit history. To avoid this type of problem, it would be very beneficial to use a feature called Automatic Payments. In this technique, money is automatically deducted from the account on the specified date. Due to this, there is no delay in repaying the loan. To improve the credit history, the loan should be repaid on time.
• Keep your balance low: If you use less than the credit limit set by the bank or financial institution or less than 70% of the credit limit, then doing so has a positive impact on your credit history. For example, if the credit limit is $100,000, it would be appropriate to use approximately $70,000.

 

 How to get a credit card with no credit?

It is generally difficult to get a credit card without a credit history, but still one can get a credit card by taking the following steps : 

• Get a secured credit card: A secured credit card can be obtained without any credit history. An ordinary credit card can be obtained by paying the interest on time after availing it.
• Apply for a credit-builder loan: Under the credit-builder loan, some amount is given to you by the bank and that money is deposited in your savings account which is called loan proceeds. This accumulated loan is paid monthly by you as interest. The bank informs the full details of the entire transaction to the credit bureaus. And the credit bureau decides your credit history according to this report.
• Consider a credit-boosting service: Some private companies help in building a credit history for a fee. But before resorting to these companies, it is mandatory for you to research the company.
• Pay your bills on time: You must, from time to time, deposit interest and fees on the funds used. Doing this strengthens the credit history.

Credit history is a form of credibility. And making it takes a lot of time, patience, and the right amount of intelligence.

 

 FAQs.

What is credit card fees or annual fees?

The card-issuing financial institution charges the cardholder an annual fee, transaction fee, issuance fee, and balance transfer fee, which are called credit card fees, for issuing the card. And this fee may also include award and administrative expenses etc.

Fixed or Variable Annual Percentage Rates(APRs) of Credit Cards

When using a credit card, the interest charged on the balance is called the annual percentage rate (APR). For example, if you owe $1,00,000 and your APR is 25%, you'll be charged $25,000 in interest over the course of a year.