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Sunday, June 16, 2024

How to use a credit card correctly

 Customers’ opinions about a credit card always vary. Some consider the card a convenient source of reserve funds, while others blame it for the emergence of large debts. Financial experts say that a reserve account is an opportunity to avoid money troubles, and sometimes also save money. However, before you design a product, you should carefully study the issue. About how to use a credit card – further.

What is a credit card?

Often a “credit card” is called any bank card. In fact, there are debit and credit accounts. The former store the money of the clients themselves, while the latter assume that the bank “lends” funds for a certain period. Any card is characterized by the following parameters:

  1. Interest rate. If you go beyond the established grace period, the financial institution accrues annual interest. Usually, interest rates on credit cards are significantly higher than on consumer contracts. This is important to consider in advance.
  2. Credit limit. There is a limited amount of funds in the account. The exact amount depends on the bank, the selected product and the client’s income level.
  3. Grace period. This is the name of the time period, implying the use of borrowed funds without accrual of interest.
  4. Minimum monthly payment. If you go beyond the grace period, you need to pay according to the schedule on a monthly basis. You can’t deposit less money – the bank will regard it as a delay.
  5. Renewability. The funds on the card can be used immediately after depositing. You do not need to request the required amount from the bank every time.
  6. Status. It affects the tariffs on the card, and may also imply certain privileges: participation in bonus programs, cashback, additional insurance. There are classic, gold and platinum credit cards.

Conditions for issuing a credit card: pitfalls

Before you use By credit card bank, you need to study all the conditions. Proposals can be divided into two large groups:

  1. Pre-approved. Credit cards for a special offer available to customers with a positive reputation. Most often available to depositors, borrowers with a positive credit history and participants in salary projects.
  2. On general terms. In this case, it is necessary to apply for a card. It is similar to a registration request consumer credit. You will need the declared package of documents and waiting for a decision.

Credit cards have their own pitfalls. Ignorance of these nuances entails serious difficulties both financially and when communicating with the bank. Namely:

  1. It is better to use the card within the grace period. You can plan your purchases so that you have the maximum amount of time left to repay them. In this case, the overpayment will be less even if the grace deadline is violated.
  2. It is not recommended to withdraw money from the account. When receiving cash, the bank deducts the transaction fee. In addition, interest can accrue from the first day.
  3. Delinquencies spoil your credit history. Any violation of obligations finds a violation in the credit history. In the future, the bank may refuse to issue funds for any needs.
  4. Issuing a card cuts the credit limit. Even if the funds in the account are not touched, they are regarded as open debt. This affects the size of the limit when applying for new loans.
  5. The card account is closed within 45 days. You won’t be able to get rid of the product quickly. The minimum closing period is 1.5 months.
  6. Annual maintenance is written off at an unfortunate time. Often, growing debt and delinquencies arise due to the write-off of annual maintenance. It is important to keep an eye on the balance of the card.

How the grace period is calculated

The procedure for calculating the grace period is determined by the product. Banks offer 2 types of grace period calculations:

  1. From the moment of purchase. The most convenient method of calculation, which allows you to profitably use the capabilities of a credit card. However, this option is offered only by some banks.
  2. From the date of issue of the card. The period is updated every month on the date of issue of the product. With this option, it is easy to get confused. If you pay for the purchase at the very end of the grace period, then there is little time left for interest-free repayment.

At the moment, the calculation of the grace period is reflected in the personal account of most banks. This greatly simplifies the use of funds from financial institutions. Compliance with the grace period is the only way to use Interest-free credit card.

How to increase your credit limit

Usually, the bank increases the credit limit unilaterally. The privilege is available to responsible payers with a good history. If the issue of revising the limit is acute and urgent, then it is worth making a request. The procedure is similar to a standard application. It implies:

  • contacting the bank;
  • submission of all necessary documents;
  • filling out a questionnaire to change the amount on the account;
  • waiting for a response;
  • adjustment of the balance on the card.

To make a positive decision, it is necessary to prove increased income or reduced liabilities. So you can report that large loans have been repaid, and the salary has become higher. Of course, confirmation of documents is required.

Cash withdrawal fee

If the rule on non-cash payments had to be violated, then you should prepare for additional write-offs. The cash-out fee is divided into:

  1. One-time write-off. For each fact of receiving funds.
  2. Commission on the amount. It is calculated as a percentage.

In some cases, the grace period stops working. It does not apply only to the cashed amount. Some banks have the ability to withdraw money without additional charges. As a rule, the limit for such operations is limited. It is less than the full amount on the card account.

Correct repayment of the loan

There are two ways to pay off the debt, based on meeting the grace deadline. You can make payments:

  1. Without overpaying for interest. In this case, you need to pay the entire amount spent before the end of the grace period.
  2. On schedule. For the use of money, you will have to pay a percentage according to the tariff of the card. It is calculated in proportion to the month. Each month, 1/12 of the annual interest is accrued on the debt.

Debt repayment can be made through the terminals of the issuing bank or partners of the financial institution. Funds can be transferred from debit cards through your personal account. You can also deposit money through the cash register.

Depending on the method chosen, the term for transferring money to the account varies. Money is received through self-service devices within a day, through the Internet bank almost immediately, and up to 5 working days go through the cash desk. It is better to be guided by the advice from bank employees: it is worth making a payment 5-6 days before the end of the payment period. Otherwise, there is a risk of breach of obligations due to a delay in the transfer.

Bonuses and cashback

Some credit cards allow you to participate in a loyalty program or receive a refund of part of the money spent. Advantage options:

  1. Cashback. A certain proportion of the funds transferred for purchases come back in the form of card currency or bonus points.
  2. Loyalty programs. Allow you to get discounts on payment at certain outlets.
  3. Gift shares. For purchases, points are accumulated, which can be spent on certain goods selected by the bank.

The most profitable option is to return the money back to the account. Often, loyalty programs or promotions offer unnecessary benefits or limit the customer’s options.

Advantages and disadvantages of a credit card

The product has both pros and cons. Among the advantages:

  • the ability to purchase the right thing without borrowing money and without issuing a separate loan;
  • use of funds within the grace period without payment of interest;
  • convenient cashless payment;
  • cashback and bonus programs for cardholders.

Of course, the product also has drawbacks. So the conditions are not always easy to understand. The interest on cards is higher than on other loan products. Cash withdrawals are usually with a commission. Regular cashing can drive you into debt, as well as a lack of understanding of the principles of the card.

Conclusion

A credit card is an excellent banking product. It helps to solve financial difficulties, not to postpone the desired purchase and pay the bill with one touch. However, before registration, you need to study the features of the card. Often, credit cards raise questions from customers. A lot of conditions are not always easy to understand.

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