A credit card is a plastic card of the size of a regular playing card. But it is a tool for your finances.
You are reading this post because you might have a credit card, but you encountered a few problems with it. Do not worry. The information shared here might help you. Read on.
What Is a Credit Card?
On the definitive side, a credit card is a plastic card which allows you to spend money without having to use cash. Like online payment processes, using a credit card gives you the cashless ability to spend money.
Credit cards offer you the privilege to use money in a cashless way at stores or any service you use. You will be given a limit to use money with a credit card. This limit is known as the credit limit. Your bill is sent to you each month, and you can pay it.
That’s how a credit card works.
Features of a Credit Card and the Fees Included
The credit card offers you the privilege of cashless money transactions. You go ahead to a storefront, choose a number of products you want to buy, swipe your card and your purchase is done.
Speaking of the features of a credit card, we can say it’s:
- Cash-free
- Convenient
- Safer than Carrying a Wallet
Knowing the credit limit, you can go ahead spending money per that amount. At the end of the month, you’ll receive a bill. The amount is known as your outstanding balance. If you pay it in full, you may not have to spend money on interest fees. But if you cannot pay the outstanding balance in full, you have to pay the interest rate. Credit card holders are required to pay a minimum of the outstanding balance. At least 1% of it should be paid. However, your credit card provider may ask you to pay between 3% and 5% of the outstanding balance.
With a credit card, you can expect these sorts of payments.
- Outstanding balance
- Interest rates
- Annual fee (if any)
Perks of Using a Credit Card You Should Know
More than 67% of people in the UK have and use credit cards. This accounts for more than 35 million people.
They are surely using a credit card for a number of advantages they can manage with it. You might be aware of them if you are a credit card holder, too. Here are the perks of using a credit card we all appreciate from time to time:
- Credit cards are extremely convenient to use. It’s a simple card, and that’s it. You do not have to carry your wallet anymore.
- It’s safer to use a credit card than hard cash. Even if it is stolen, you can ask your credit card provider to simply lock it.
- Credit cards do come with free rewards and other discounts. Business credit cards have relevant deals for your brand. Few travel credit cards come with travel insurance.
- When you are paying with a credit card, you avail the benefit of Section 75. It’s a regulation where your payments are protected from 100 pounds to 30,000 pounds.
What Are Common Credit Card Blunders You Need to Avoid
Credit cards come with a lot of benefits. This post may not explain all of them. However, using the credit cards inappropriately can get you into trouble. In this case, you need to learn how to use your credit card wisely. That can help you save yourself from the penalty fees and extra costs. We will have a short discussion on them before we conclude this post.
Before we begin discussing common credit card mistakes, you should know that credit card mistakes can lower your credit score. In cases such as this, make sure you keep on making payments in the right amount without missing them. For example, if you take out one of the bad credit loans with no guarantor requirements, then setting up timely repayments can help you save and actually improve your credit score.
- You Didn’t Pay in Time and in the Full Amount
You are using a credit card. However, you missed paying the bills on the assigned date. You become late in making each payment. This significantly gives rise to bad credit behaviour and lowers your credit score.
Plus, you might lose repaying the interest rates when you are supposed to pay them in case you are paying a part of your outstanding balance.
- You’re Spending More Money than Your Credit Limit
You see, you don’t have to use all of the money and beyond to use your credit card.
Your credit limit is a set amount beyond which the credit card holder should not spend money. However, that does not mean that credit card holders will use up most of their money – such as 90% of the credit limit – to make purchases.
According to experts, you should keep the expenditure somewhere around 30% of your credit limit. For example, if your credit limit is 1000 pounds, you should aim at spending 300 pounds.
- You Are Owning More than One Credit Cards
That might be a necessity. However, you cannot manage too many credit cards if your finances are not in good form. In this age of inflation, most people would choose to have a single credit card.
You should not get a second credit card because it may damage your credit score because you are now managing the fees and interests of more than one card.
With two cards, it’s difficult to get credit. It is because your lenders or concerned financial organisations will choose hard credit analysis. This factor might be complex for an owner of multiple credit cards. Eventually, you might expect delays in getting your credit.
- Carrying Unpaid Balance
This factor might happen when you are not paying your credit card’s outstanding balance in full amount. This makes your credit card provider charge you increased fees.
Plus, it gives rise to the probabilities of debt.
You should immediately find ways to fix this issue. You may save money from your income or ask family/ friends for money to pay off the outstanding balance. You can also take out one of the small short-term loans to pay this amount. Short-term loans are unsecured loans given in a soft credit check. If you take out the loan responsibly and repay it in the right time, then you may surprisingly see improvements in your credit score.
What Are the Possible Credit Card Risks?
Per the discussion in this post, we may say pending credit card fees might give you trouble and cause you to miss out on a few perks. Here they are:
- Low credit score
- Probability of credit card debts
- Resistance to owning a second card
- Missing out on credit card freebies
- Paying penalty charges for late card payments
- Problems in saving money
- Overall financial stress
To Conclude
I hope this post has helped you to understand what you might need to do to use a credit card productively. Find out more by researching extensively and by speaking with your credit card provider.