How to Use Credit Card Effectively | Credit Card Uses & Benefits

What is a Credit Card?

A credit card is a secured and flexible way that enables the cardholders to pay a merchant for goods and services based on their credit eligibility. Credit card lets the cardholders spend money on credit up to a pre-set credit limit which is fixed by the card issuer, generally a bank or a financial institution. 

The bank inspects the credibility of the credit card applicant and grants a line of credit from which the cardholder can borrow money for payment to a merchant for goods and services. Following points will guide you to understand the credit card in a better way.

• Credit card lets you make purchases on your credit eligibility and repay the amount at a later date. 
• Banks decide the credit limit and the cardholders cannot spend beyond their predefined credit limit. 
• Credit limit of the cardholders is assigned based on their income stability, credit history, and job stability. 
• A credit card is tied to a credit account with a bank, and the cardholders borrow money from the issuing bank. 
• Credit card is used to avail goods or services with any merchant that accepts payment through credit cards. 
• Credit cardholders are independent to use their credit cards until they've borrowed up to their credit limit.
• Once the cardholders repay the credited amount they have more available credit to borrow again.

Smart Use of A Credit Card 

Sometimes, the credit card and its usage may seem confusing for a beginner. There are various banks offering several kinds of credit cards having different features and benefits. Depending upon different financial needs, the right credit card is the one that is appropriate to your spending personality. Credit cards can be costly in case you only make minimum payments or run up a bill which you can’t pay back. It is basically determined based on how confident your card provider is regarding your repaying capacity. 

• You won’t pay interest on what you’ve borrowed provided that you pay off the bill in full each month. 
• In case you withdraw cash though, interest will be charged on a daily basis from the date of withdrawal.
• The interest rate for cash withdrawals is also usually higher than for purchases, thus one should avoid taking cash out using a credit card. 
• The interest will also be charged in case you don’t pay off any outstanding balance in full. 

Irrespective of all odd perspectives, credit cards can be a productive and fruitful means if you use them responsibly. A smart credit cardholder can enjoy a lot of rewards and benefits and improve his credit score at the same time. 

Here are a few major points that you must consider to use a credit card wisely:

Always Make Full Payment:

Credit cardholders should make every possible effort to pay the full statement balance every month. They will automatically start accruing interest charges the moment they begin to carry a balance, which will compound daily until the elimination of complete debt. 

Know Your Benefits and Rewards:

Along with providing several benefits to the cardholders, the banks also reward customers for making purchases. There are several benefits of using a credit card like built-in purchase protection and coverage for stolen items. Before applying for a credit card, one should also consider that its rewards are both accessible and useful to him. 

Proper Review of Credit Statement: 

The credit holders should review their credit statements properly to ensure that all the charges on their statement are legitimate. In case they find any discrepancies in their credit statement, they should inform the bank or issuer authority immediately. 

Consider Your Affordability 

The cardholders often get into trouble because they use credit cards to spend money excessively beyond their needs. To avoid these financial issues, the credit cardholders should only make necessary purchases that they can afford while repaying the credited amount. 

Make Payment on Time:

The best thing that the credit cardholders can do for sustaining their credibility is to always pay on time. The payment history is a crucial factor in determining your credit score for further uses, and on-time payments will help you get excellent credit in the near future. 

Avoid Skipping a Payment:

Skipping a payment could result in penalty interest rates that create a negative impact to your credit eligibility, therefore, you should pay your bill every month. One should use the credit card as a temporary loan and should pay back the amount as soon as possible to decrease or avoid interest charges.