Credit Card Basics and Beginners

Credit Card Basics

The credit cards are becoming a major feature of financial management. Knowing the fundamentals of credit cards is of great importance for novices in order to avoid financial problems and take advantage of the benefits they can provide. A credit card is a plastic card, issued by financial institutions, that enables borrowing funds, usually at the point of sale. The amount lent out needs to be repaid by the end of a certain term in order to avoid paying for the interest.

Here is why you may consider using a credit card –

Convenient purchases: Credit cards make the payment process quick, simple, and secure. They obviate the requirement of carrying cash and offer a convenient platform to pay for everything from groceries to utilities. They even allow the facilitation of online purchases and reservations, which means that shopping and travel arrangements become easier.

Financial emergencies: In case of an unforeseen financial crisis, you can think of a credit card as a handy credit option you can just get when you need it. It can cover temporary expenses without the hassle of complicated loan application processes. Nevertheless, it is important to repay the borrowed amount on time and in full as fast as possible to avoid the finance charges and late payment fees.

Reward points: Many times, credit cards have a system of reward points where every purchase gives you points. These points can be accumulated and later exchanged for a variety of benefits such as discounts, gift cards, merchandise, or even travel bookings, thus making every purchase more rewarding.

Cashback offers: Several credit cards offer cash back on specific categories of spending, including dining, grocery, and fuel. Such a situation implies that a certain portion of the spent money will be returned to the card user, which in fact decreases the net spending.

Credit score: Timely repayment of credit card debt has a positive impact on your credit score. A good credit score of 750 and above can make it easier for you to secure loans and may even qualify you for lower interest rates when taking loans.

EMI facilities: Large purchases might put a burden on your finances. Credit cards allow these expenditures to be divided into manageable monthly instalments (EMIs), making large-ticket products more affordable.

Travel perks: Some credit cards appeal to regular travellers by providing perks such as travel insurance, free airport lounge access, and air miles that may be used for trip reservations. Some also provide concierge services and exclusive discounts at hotels and resorts.

Fuel surcharge waiver: Some credit cards remove fuel surcharges, which can result in large savings for consumers who spend a lot of money on fuel. This waiver might be for a certain sum each month or a percentage of the gasoline purchase.

Online purchasing: Credit cards frequently provide discounts, rebates, and EMI choices through numerous online purchasing sites. This can result in significant savings and make it more reasonable to buy expensive products online.

Exclusive offers: Banks frequently collaborate with numerous products and services to provide unique discounts and deals to their credit cards. For example, SBI credit cards may take advantage of a variety of exclusive incentives, such as cheap cinema tickets, exclusive dining bargains, and bonus reward points on select purchases.

Now, let’s dig into key aspects that newbies should know before acquiring a credit card – 

Credit limit: Credit limit is the amount of money that the credit cardholder can borrow from the credit card. This limit is established by the issuer depending on the credit score, income of the card holder and his/her ability to pay off the dues. If you go beyond this limit, you will be fined an over-limit fee by the bank and it can affect your credit score negatively.

Billing cycle: The billing cycle is where the credit card statements are given between two subsequent billing statements. Knowing your payment cycle is good way to help you plan your spending and repayment to avoid the cost of late payment and interest.

Interest rate: If the credit card bill you owe is not settled in full by the due date, interest is charged on the balance amount. ​Failure to pay up might lead to a huge debt with the APR (annual percentage rate) which is often very high.

Minimum payment: This is the smallest amount you would need to pay on your credit card balance to avoid any credit card mishaps. Nevertheless, not paying the minimum amount results in interest charges on the remaining balance which in effect crunches the repayment period.

Late payment fee: In case you do not make payment of at least the minimum amount due by the due date, then you will be charged a late payment fee This interest hike increases your loan but also lowers your credit score.

Annual fee: This is a yearly charge for using the credit card. However, some cards like the SBI lifetime free credit card may  have minimal fees, reducing your yearly charges.

Cash advance: Withdrawing money from ATMs with the help of your credit card is an additional function. Nevertheless, they have steep fees and interests are compounded from the beginning of the withdrawals, which makes them an expensive choice.

Foreign transaction fee: This cost is imposed when you use your card to conduct transactions in a foreign currency. If you often go overseas or purchase on international websites, look for a card with minimal or no foreign transaction fees.

Balance transfer: You may transfer your debt from one credit card to another, generally at a cheaper interest rate. This can help you manage your bills more effectively and save on interest.

Reward points: Many credit cards include reward points for purchases, which may be redeemed for a variety of perks such as discounts, gift cards, or cashback. Understand your card’s reward structure to maximise these benefits.

Security: Credit card fraud is a severe issue. Always keep your card information safe, never reveal your PIN or CVV to anybody, and report any lost or stolen cards right once.

Card type: Credit cards provide a variety of perks tailored to different spending habits. There are several types of cards, including travel, retail, and fuel cards. To get the most out of your card, choose one that matches your spending habits.

Credit card statement: This is a full record of every transaction made with your card throughout the billing period. Regularly reviewing your statement allows you to track your spending, uncover fraudulent activity, and plan your payback.

Creditworthiness: A credit score is a measure of your creditworthiness. Repaying credit card balances on time can enhance your credit score, making it simpler to get loans or other credit in the future.

SBI credit card offers: SBI credit card offers include cashback on specific areas of expenditure, and reward points for purchases. These deals might help you save money and get more out of your card.

To summarise, credit cards are effective financial instruments when used appropriately. Understanding the fundamentals is the first step towards responsible credit card use. SBI’s lifetime free credit card and unique bonuses make it an appealing option for many. Remember, a credit card may make or break your financial situation. So, spend prudently and pay on time. Happy spending!

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