For some people the idea of using a credit card to pay for transaction may be chic and classy. But the primary goal of a credit card is the ease of carrying and spending cash that it provides. Similarly if you participate in the numerous perks offered by financial institutions that issue credit cards, you stand to benefit a variety of rewards for purchasing items that you would have bought anyway.
We should note from the beginning that credit cards and debit cards are not the same. A credit card is a financial tool issued by a credit card provider designed to pay for things in shops and on online.
You can use credit cards to balance transfers and taking out cash from an ATM. They are mostly accepted everywhere in the world so they are handy in any language. All credit cards also contain a magnetic strip on the back; some contain a Radio Frequency Identification, RFID, chip. The owner’s name or business name and account name may be imprinted on the front. The more popular cards in Nigeria are VISA and MasterCard.
A debit card on the other hand works by using the money you have in your bank account. Hence, when you use your debit card to make a transaction it comes straight out of your account. They are mostly not accepted everywhere in the world but are limited by region.
Credit cards have a spending limit based on the cardholder’s credit rating and current income. And understanding more about how credit cards work can help you use them without falling into any traps.
First thing to note, credit cards are not everyone. Just because your bank is offering to every customer does not mean you need it or should take one. You do not need a credit card if you have the tendency to be profligate – that is lack self control. You do not need a credit card if you are not ready for personal responsibility or you are in the process of repairing your finances.
A credit card works the same way as a loan facility and therefore comes with interest. It affords users the benefit of using a bank’s money instead of their own to pay for a product or service and repay overtime. In any case if you purchase a product with another person’s money from the bank and you are not able to repay it, the consequences could prove damaging for your financial future.
This is why it is recommended that you carefully get the necessary information about a credit card before you take it. Be sure you understand the terms that come with it.
Put a lid on your spending habits and always remember that being able to make the minimum monthly payment does not mean that you can afford to make the purchase.
How does it work?
At the point of sale, you hand over your card to the cashier or submit your card number over a secure internet connection, your account is validated and if your bank Okays it, the value of your purchase is added to your credit account. The bank calculates your credit card purchases and sends you a bill usually on a monthly basis.
Paying in full is always the better option. It ensures that you are keeping track of how much you are spending on your credit card each month and ensuring you will have enough cash the following month to cover the purchases.
Another option will be to pay a minimum amount, determined by the bank, to avoid extra fees. However, this comes with an interest added to what you owe the following month. Before long the interest adds up and could make a small transaction double the price.
Paying in full and on time portrays you positively as a credit-worthy customer for the bank. The bank in turn might use this as reference for your further dealings with other companies in future.
