What is a credit card
What is a credit card and how it differs from a debit card
If you are a debit card holder, your bank has probably offered you to get a credit card more than once. What it is and what the potential owner of the “magic” card that solves all problems needs to know.
In professional terms, a credit card is an electronic means of payment which allows you to carry out transactions at the expense of the bank within the limit set in the contract.
A debit bank card, in turn, is also a means of payment, but you use money from your account, not from a bank account. Debit cards are used to pay salaries, transfer money, and can be used for cash deposits or withdrawals. If your card has a zero balance you can’t spend anything, unless of course you have an overdraft facility.
An overdraft is a plug-in feature that allows you to use the bank’s funds when your own on your debit card has run out. It’s essentially a mini-loan: you’re given an amount missing for a purchase that needs to be paid back in a very short period of time. The interest on it is higher than on a regular loan, so an overdraft is better kept as an option for the last resort.
Thus, the main difference between a credit card and a debit card is the source of the funds to be spent and the presence of interest on their use.
A credit card, in fact, allows you to take out a loan for a specific purchase without going to the bank and signing a new contract. Once you sign up for this kind of plastic, you can borrow and pay it back as many times as you want.
Many people order credit cards as a one-time loan – when they need to make a purchase for which they don’t have the full amount yet. After that, the amount spent is returned to the card account, and the plastic is no longer used or used as needed.
What Every User Should Know
Before agreeing to sign up for a credit card, it is important to remember the basic terms that will be useful not only when signing the contract, but also when using the product in the future.
Settlement, payment and grace periods
If you’re not familiar with these terms, they may seem like different names for the same word. But they are not.
Settlement period is the time during which you can use the money allocated by the bank within the limit set in the agreement. It includes all credit card expenditures: both non-cash expenditures and cash withdrawals. It lasts from the date of the statement until the date of payment.
Payment period, in turn, is the time during which you have to repay the credit from the moment you make a purchase on the card. You can repay not the full amount, but only a part – the main thing that it should not be less than the minimum payment prescribed in the contract with the bank. If you repay the debt during this time, it will not be charged interest or commission.
Grace period or a grace period is an interval which includes both payment and repayment periods. It will be different for different banks and card credit programs – from 30 to 50 days, in some cases up to 100 and more. During this period, the client can return the money spent on credit cards without interest. Once the grace period expires, interest begins to accrue.
Let’s look at an example of the following situation. Maria signed up for a credit card on 1 September and made a purchase with it on the same day. The card has a grace period of 50 days, starting on the day of the purchase and ending on October 20. The 50 days include the billing period in which Maria can make credit card purchases – it lasts 30 days. The remaining 20 days are allotted to make a mandatory payment or pay off the debt in full.
The word “issuer” comes from the Latin emottentins – “sending, emitting.” Thus, an issuing bank is an organization that issues any payment instrument, including a credit card. The issuer has obligations to its clients: it undertakes to provide the amount agreed upon in the contract and to service the plastic.
This is the amount of money the bank allocates for you to use. It is established depending on your ability to pay, so the credit limit will be different for each client. Both your salary and other sources of income are used to calculate it, as well as your length of service, clean credit history, etc.
If you use a debit card or have a payroll card, you are likely to have been offered a credit card for a certain amount. As a rule, such offers are based on your spending and salary data.
Keep a close eye on your credit limit and plan your purchases so that you will be able to pay on time and “painlessly” for your budget.
Line of Credit
A credit line is a term that is most commonly used for legal entities. However, it also applies to individuals who set up a credit card. A credit line is different from an ordinary loan in that the client can withdraw and use the funds in installments as needed. And you don’t need to fill out a new application and an agreement every time, the main thing is to meet the deadline.
There are several types of credit lines, but the most common is a revolving credit, the so-called “revolving” credit. Its essence is that the client receives a certain amount of money, which he can dispose of with a credit card.
Let’s say that it is 50 thousand rubles, and the term of credit plastic – 4 years. During these 4 years, the borrower can make purchases, pay for them with the card and return the resulting debt. Once you repay the debt or make a minimum payment, the credit is resumed – and you can again use the initial amount of 50 thousand.
Everyone has a credit history – even people who have never borrowed money. It records not only a borrower’s credit history, but also his or her payments for utilities, communications, and child support. In essence, it’s a borrower’s financial record, which allows companies – banks, insurers, and potential employers – to assess how competent and responsible a person is with their own finances.
All of your delinquencies end up in your credit history. The more negative marks in your credit history, the more likely it is that you will be denied both a credit card and a small loan.
A mandatory amount to be paid back to the bank during the payment period. There is no fixed minimum payment amount. Its size depends on the rates of the bank and the terms of the card.