Credit cards are financial tools that modern man uses today. These cards function in many ways, depending on the type of card, but are primarily used for the purchase of goods and services. One of the credit card advantages is that one need not bring cash when going to any commercial store, complex or mall.
While credit cards can also function like that of ATM bank cards, the features that a credit card may carry vary from one type of card to another or from one company that issues the card to another. Credit cards are also used for online purchases, and two favorite brand cards have dominated the global market: VISA and MasterCard.
When using a credit card, all purchases are charged to the card without the card owner having to make a fund transfer from a savings or checking account to the credit card. The charge is similar to a loan where a certain percentage is added to the purchased item. Debit cards may also carry the VISA and MasterCard brand logos. However, unlike credit cards, one needs to deposit a certain amount into the debit card to be able to make payments or purchases.
The billing cycle for purchases made on a credit card is 30 days and a grace period is given to the owner before the payment is due. One advantage of having a credit card is that one can make emergency purchases without having to run to the bank to replenish the account. If you are on a tight schedule and have to buy an airplane ticket immediately, the credit card comes in handy.
As the word says, the card helps the owner build a good credit that can be useful in the making of a loan. One card company requires a credit card to be of use for at least 12 months before a loan can be approved. Unlike debit cards, credit cards offer perks like travel rewards computed from a certain percentage out of every purchase. Some cards offer zero percent interest on purchases.
Cards that are backed up by cash are called “secured cards,” the function of which is to back up the owner’s purchases like collateral, and to eliminate the risk of non-payment for the card issuing company. To maintain good credit standing, the card owner has to pay all purchases before or after the payment due date.
Credit card companies also apply the periodic interest rate estimated from the annual percentage rate divided by 365. A card owner can avoid accruing interest by paying the new balance on the credit card statement every month. However, if a credit card owner makes a cash advance out of the card, the card owner would have to pay a higher interest rate minus the benefit of a grace period.
Minimum payments are made by computing the percentage method or applying the percentage plus interest plus fees method. Once the cash balance in the card is low, the owner may be made to pay a flat minimum payment from about $25 to $35 a month. To have a good credit score, a card owner must have an excellent payment history.