Personal Credit Cards
The decision to buy things can be spontaneous: you learned about the sale in your favorite store or about the favorable prices for tickets. Or maybe your paycheck is delayed. For all of these cases, you can use a personal credit card. You can use it to pay for goods in supermarkets, household appliances or clothing stores, book tickets or tours, pay bills in cafes and restaurants, order goods online and much more.
What is a personal credit card?
Credit cards are payment cards that allow the client to pay for goods and services at the expense of the bank. This makes it possible to always have an additional amount for expenses, which is convenient in case of unplanned purchases: for example, it becomes possible to take advantage of unexpected discounts or advantageous special offers, without waiting for the salary to be transferred to the debit card.
What does a credit card number mean?
The number of bank payment cards (for example, the most popular payment systems VISA and MasterCard) consists of 16 digits.
It is formed as follows. The first 6 digits are the so-called BIN, that is, a bank identifier, this number is assigned by the payment system to a particular bank for a specific type of card. The remaining 10 digits are formed when the card is personalized according to several characteristics that are set by the bank. There may be a sign of currency, and the number of the branch where the card is issued, and a sign of the presence or absence of the chip. In any case, the number of each card is unique and not random.
The amount that the bank is ready to lend to you is limited – each bank determines a limit based on the solvency of the client. If you are already a client of the bank (you have an account where money is regularly received, or a deposit), the limit will probably be higher than in a bank new to you. The credit limit can be increased if you regularly spend money from a credit card and return them on time.
Almost all credit cards have a so-called grace period – the period during which interest on the use of funds is not charged. And if you borrow money from the bank and return it within the deadline set by the contract, you will not have to pay extra. Typically, the grace period is 30-60 days and includes:
- the time during which you shop (usually a month);
- the time during which you must return the money.
Some banks offer an extended grace period. However, not everything is so simple: during this period, you still have to pay off some fixed part of the debt. Or a credit card with an extended grace period may have limited functionality – you can use it only with partners of the bank.
Credit card expenses
In addition to the money that you will borrow from the bank and which you will have to return, a credit card may involve other expenses:
- interest on the use of credit;
- annual maintenance fee;
- commission for transfers, cash withdrawals at a bank ATM.
Compare all conditions together. For example, a bank can compensate for a low annual service fee with a high interest for using a loan.
Check if the bank is trying to impose on you additional services that you do not need (for example, insurance or remote servicing), but which you will have to pay for. Check if such services are required and how much they cost.
It’s worth checking the amount of annual service – many banks do not take a fee for annual service in the first year but they can take it as follows. Please note: the term “annual service” does not necessarily mean that you pay for using the card only once a year – for example, 1/12 of the amount for annual service can be debited from you once a month.
Almost all banks charge a fee for withdrawing cash from a credit card. Please note: the commission may be in the form of a percentage of the withdrawal amount or in the form of a certain amount.
Bonuses and loyalty programs
Banks may provide loyalty programs for credit card users. The loyalty program is a way to return part of the money spent. Therefore, choosing a personal credit card, study the bonus programs that the bank offers and evaluate whether this offer is useful to you or not. For example, if you do not have a car, you are unlikely to need a discount on gas station services. But if you fly often, bonus miles will come in handy.
Credit cards have a wide range of features. They can be paid anywhere in the world where terminals are installed.
The main advantage of most cards is the availability of a grace period. There is no need to report to the bank about the purpose of using the money, and after paying the debt, it becomes possible to get a new loan.
You can get a credit card at most US banks. To do this, you must submit your application through the office of the institution, its Internet site or by phone. You will only need an ID.
How many credit cards can one person have?
You can request several cards in different banks or in one bank. Banks offer a wide range of personal credit cards with different conditions and forms of rewards, each of them can be used for different situations – for example, one card is beneficial for paying for air tickets, and the second for shopping. In addition, two cards allow more flexible use of the grace period, repaying debts on cards at different times.
Credit card vs loan
When you should choose a credit card:
- You got used to using a card and there is no frequent need for cash;
- You need extra money regularly;
- Spontaneous and unplanned purchases are common for you;
- You make purchases online and try not to miss the best prices, for example, book tickets or foreign tours during the discount period;
- You want to have extra cash on your card during your travel just in case.
When you should choose a loan:
- You usually plan large expenses, for example, for training, organizing an important event or repair;
- As a rule, you know how much you will need and do not plan to spend more;
- You prefer to pay a fixed amount and do not want to track the grace period.
Credit card vs debit card
Some people confuse a credit card with a debit card. A debit card usually always contains a positive balance of funds that are the property of the card holder. People save money on debit cards, receive wages or income from deposits on them. Credit cards, on the contrary, imply access to the bank’s funds, and are used in cases of insufficient own funds.
8 rules for credit card holders. How to manage your debts?
1. Make payments on time
This is the most important credit rule. Do not overdue credit card payments. Your credit history depends on it. A good credit history guarantees approval of a large loan, if necessary. Therefore, you should not neglect this rule. Besides, banks charge fines for violation of payment deadlines.
If you manage to pay off all the debt during the “grace period”, the bank will not charge any interest. If it is not possible to pay the entire debt, then at least the obligatory payment must be paid before the expiration of the “grace period”. This will help to avoid penalties.
If you constantly have problems with paying off debt on time, it’s better to refuse credit cards.
2. Never use more than 30% of the loan
The lower the ratio of used money to the available limit, the better you will have a credit history. Banks do not like customers who spend almost the entire credit line provided to them. Even if you slightly exceed the 30% threshold of the credit limit, you run the risk of getting into the lists of “inconvenient” customers. Then you may be denied a new credit card, and not only in this bank.
But most importantly, you risk getting into a situation where you have to pay interest for months. If the amount turns out to be unbearable for full repayment in the “grace period”, you will pay the accrued interest for its use. If you fail to pay off the debt in the next month, the interest will increase. Your credit will grow like a snowball. Getting into debt is much easier than paying it off.
3. Delve into the loan agreement terms
Before signing a banking service agreement, it should be carefully studied. Each bank has its own lending conditions – and they may have their own “pitfalls”.
We recommend that you carefully study what interest rates are offered by the bank. You need to read every page of the contract, including text in small print. Often, the ignorance of the information contained in these lines can play a trick on you.
And be sure to keep the printed contract with the bank, otherwise you will not be able to quickly solve the problems.
4. Check credit card report
First of all, you may find any inaccuracies – banks are also not immune to errors. And secondly, checking the report disciplines you in terms of future expenses. It will be easier for you to understand where you could save and what expenses were unnecessary. Regularly checking your credit report is another opportunity to improve your credit history.
In addition, banks constantly provide all kinds of bonuses to the most disciplined borrowers.
5. Spend money planning a budget
The essence of a credit card is not in everyday use, but only in situations when it is really necessary.
Many people don’t follow this credit rule because they consider the credit card a “financial lifeline”. Meanwhile, credit cards should only be used for purchases that cannot be paid on your own without a loan.
Do not drag yourself into a “debt hole” – plan your budget. Uncontrolled spending leads to an increase in interest payments.
6. Plan future costs
Treat funds on a credit card as your own, not as the borrowed ones. If you are going to borrow money for a major purchase or vacation, then you need to save on something else.
Then it will be easier for you to meet the “grace period” and you will not have to pay interest.
7. Keep a balance between expenses and income
Credit cards are not income, not personal money. We often forget about this, getting used to paying daily small purchases with a credit card. This is fraught with exceeding the 30% threshold of the credit limit.
Often banks offer to increase the credit limit, but this is not a solution to the problem. After all, a higher limit will “spur” you to spend even more available money. Therefore, weigh the pros and cons, and make sure that you master the repayment of debt in the “grace period” in case of an increase in the credit line.
8. You should not have too many credit cards
One card is good for credit history. But if you use it regularly, then the presence of several cards will greatly facilitate financial management. Especially if you have credit cards with a “grace period” of varying lengths. But remember that some banks have a negative attitude towards customers who use multiple cards at the same time.
Compliance with these eight rules helps to avoid unnecessary interest expenses and use money on credit cards with maximum efficiency and pleasure.