Digitalization is shrinking the world. Now it is a lot easier to grab employment abroad, transactions from foreign brands, or have other international dealings. Since trades have broadened to global levels, payment modes are also elaborate. Credit cards are now a possession of the middle class rather than just elitists.
The credit card encapsulates multiple confusing terms. Hence, owning your first one may be an overwhelming experience. That’s why we are here today to clear all your doubts and welcome you to the world of digital currency.
What is a credit card?
A credit card is a rectangular metal or plastic issued by a bank or a financial institution to facilitate credit transactions for its customers. The credit card holder can utilize it to purchase products or services and repay the bank over some time. The person shall require to incur the transaction amount, interest, and any other charge the bank levies.
What are the benefits of a credit card?
Despite their high interests and charges, you may wonder why people use credit cards. Regardless of the extra charges, credit cards offer multiple benefits for the holders.
Use for credit transactions
Not always do we have ample cash in hand or the bank account. However, credit cards can be our rescuers in such a situation. Using these, banks pay for our purchases, and we can pay to the bank after some time.
Build strong credit scores
To accrue a loan from the bank, one must have a strong credit score. With a credit card and timely repayment, one builds a credible history helping in easy loan approvals.
Enjoy unlimited discounts
Credit cardholders enjoy unlimited discounts and cashback for each transaction. Be it at the fuel station, purchasing a movie ticket, online shopping or any other transaction. There are higher discounts and cashback if the transaction involves a credit card.
Reward points
Customers also enjoy reward points with each credit card transaction. These are redeemable and can offer huge discounts on future purchases.
Cash-free withdrawals
In a financial emergency, one can withdraw a specific amount of money with a credit card. Usually, the return payment for interest-free cash withdrawals is 45 to 50 days. However, it depends on the bank’s policies.
Apart from the above, insurance coverage, stress-free travel, expense tracking etc., are other benefits of a credit card.
Key terms of a credit card
Any credit card holder must be well versed in some crucial terms related to credit card dealings. Here we intend to provide ample information regarding these so you can take a step forward towards owning your credit card.
Credit Card Payments
What is Credit Card Balance?
Before knowing about credit card payment, its pivotal to understand credit card balance and its contents.
The credit card balance is the card holder’s dues to the bank or financial institute that issued the card. This amount is not just the reflection of the transactions but may also constitute interests, fees, penalties, etc.
How is the credit card balance calculated?
The credit card balance constitutes multiple charges. Here is a peak-
Transaction amount
The amount accrued while purchasing products or services using the credit card is the purchase amount. This shall form a major chunk of your credit card balance.
Cash Advances
Using a credit card to withdraw money from ATM can result in cash advance charges.
Interest
Banks charge a fixed interest on credit card balances. However, nowadays, some banks offer a credit card at zero percent interest.
Foreign Exchange interests
It is for people with international credit cards. When they utilise it for purchases in a foreign currency, the amount finds place in the credit card balance.
Annual Fees
Every bank or financial institute has fixed annual fees for the credit card, just like any other service.
Penalties
Late payments, return payments, and other such things can attract penalties from the bank, and one can find these too accumulated with the credit card balance.
Carry Forwards
Your last month’s credit card balance is carried forward to the current month after deducting the payment amount.
What is Credit Card Payment?
Now that we are versed with credit card balance, it becomes easy to understand credit card payment and how we can lower it.
Credit card payment is the amount a holder pays to the bank or the card issuer. It may either be an amount equivalent to a credit card balance or the minimum payment amount required to wave impending interests.
How to avoid paying extra on credit card payments?
Now that you understand credit card payments and balances, here are some quick tips to save money.
Pay off all the debt
The best way to avoid increasing interests and carry forwards of credit card balance is to pay all of it before time. This ensures you have an excellent credit score valid for the future.
Exceed minimum payment range
Every bank has a specific rule wherein credit cardholders require to pay a particular amount as minimum payment. This avoids penalties. If you are short of funds during credit card payment, avoid penalties by paying a bit higher than minimum requisites.
Avoid cash advances
If you use your credit card to withdraw money from the bank, it incurs immediate charges. You can lower the credit card balance by avoiding cash advances or doing so only during an emergency.
Avoid Credit Card for Medical Bills
If you begin using a credit card for medical bills, the balance may become huge without even realizing it. Since medical expenses can be sometimes exorbitant, it’s wise to avoid credit cards in the circumstance.
Consider EMIs
If considering a big purchase via your credit card, opt for EMIs. It will help split the expense and be a lesser burden on the credit card balance.
Dodge Rewards
Credit cards offer huge rewards, and it’s easy to fall for these. However, stay responsible and avoid making extra purchases to grab rewards since interests are always higher than rewards. Hence, you may end up spending more than the reward amount.
Credit Card Transactions
What is a credit card transaction?
The credit card transaction is the process where a credit cardholder purchases a product or service from a merchant and proceeds to pay through his/her credit card.
For example, If you shop for groceries at a supermarket and choose to pay through your credit card by swiping, it becomes a credit card transaction.
However, there are several steps involved to make it a complete credit card transaction.
What are the steps of credit card transactions?
- Purchase at an e-commerce store or any other place that accepts credit cards.
- Swipe the card at their POS or enter the required details.
- Merchants banks shall connect with the payment gateway for authorization.
- Card holder shall receive a confirmation code. If not, they must connect directly with their credit card issuer.
- Merchant bank approves transactions once the code is entered.
- The merchant provides a slip confirming the transaction.
- Merchant sends all credit card payment details to the bank at the end of the day.
- Bank clears payment after deducting a certain percentage.
- Merchant receives money in his bank account.
Credit Card Remittance
What is Credit Card Remittance?
Remittance is a term that is frequently confused with payment. However, these two are different phrases used in some specific situations.
Credit card remittance is a payment that one party sends to another individual or entity. In most cases, remittances are the payment by foreign workers to their family members in their home country.
Remittances can be carried through various means such as checks, electronic transfers, wire transfers, etc. However, credit card remittances are the most reliable out of all these. The biggest drawback of credit card remittance is the high fees incurring on both sides of the transaction.
Conclusion
Credit cards payments, transactions, and remittances are all different phrases and have varied meanings. We hope the articles clear all doubts regarding credit cards, and now you are in a position to decide whether to choose one or not.
Always remember to be responsible and use the credit in the best way to avoid spending more than you should.