Thinking of getting a credit card? If you know how to use it correctly and manage your expenses, it can become a tool with great benefits, so it is essential that you know exactly how a credit card works from the beginning.
What you should know about a credit card before using it
What is the credit card?
A credit card is a payment tool mainly offered by banks and that you can use to pay for your purchases in millions of establishments around the world, all those that have a terminal to process card payments.
The difference between a credit card and a debit card
When you have a debit card you can only use the money that is already in your account, that you or someone else deposited into it; If the account does not have enough money or funds then your purchases will not be able to be processed.
When you use a credit card you will be using extra money to your income, money that is not yours and you will have to pay, so you can think of your credit card as if it were a loan.
How to get a credit card
Whether a bank has offered you a pre-approved card or you are thinking of applying for one, the institution with which you get your credit card can evaluate factors such as your credit history, income and ability to pay for the approval and assignment of one credit line. The credit line establishes the maximum amount of money that you can have, either to make the payment of your purchases using plastic or to have cash.
Once your credit card has been approved by the institution and you have accepted it, they will give you a personalized plastic with a unique identification number, an expiration date and a security code, data that will be used to process your purchases and payments.
Here you can find out in more detail what they are and what each part of the credit card is for.
You already have your card… now what?
First, it is essential that when you receive and activate your card according to the instructions of your bank, you sign it on the back, doing so will prevent other people from using it without your authorization in case of theft or loss. Clever? Now is the time to use your credit card.
Payments and purchases in physical establishments
Currently, most of the establishments accept card payments, generally some of the smallest ones have not yet added because they do not have a terminal to process payments. If you're not sure, ask the manager or employees if they receive card payments.
To make purchases with your credit card in physical establishments it is essential to present your card, which must be read by the establishment's terminal in order to process the payment.
It is recommended that you always carry an official ID with you, some businesses will want to make sure that you are the owner of the card.
Once the purchase is processed, you must sign a voucher that has the role of a promissory note and you will receive a copy as proof of your purchase, ideally you should keep it at least until you receive your statement of account in case you need to make clarifications.
To make purchases online you do not need an official identification, you only have to provide some information about your card, such as the number that appears on the front, the expiration date and security code, in addition to the personal information with which it is registered, such as your full name and your address.
Take into account that this is sensitive information and that anyone who knows it can make purchases on your behalf, so to avoid fraud you should check that the page on which you will make your purchase is legitimate and that the payment processing system is secure .
When making a purchase with your credit card, the bank or the institution that issues the card is responsible for paying the business the amount of your purchases and then you will have to pay the bank. Remember that your credit card payments work like a loan that you must pay to the bank.
Every time you make a payment or a purchase with your credit card or that you have cash, these amounts are deducted from your available balance and become a balance to pay.
Every time you make payments or credits to your card, that balance is available again. If you exhaust the available balance then you will no longer be able to use the card until you pay the amount.
Defer payments and months without interest
Although it depends on the promotions of the store where you make your purchases and the benefits of your card, sometimes you can defer your purchases in monthly payments. But be careful, you must check if the promotion is about months without interest, otherwise the interests that accumulate from one month to another will make your debt grow and you will end up paying more, in installments but more.
When will you have to pay the bank
One of the advantages of credit cards is that they are used to finance your purchases, that is, you do not have to make an outlay immediately to pay for them.
Each plastic of each person has its own Cut-off Date as well as a Payment Deadline. It is very important that you fully understand the difference to avoid generating additional interest and charges.
The cut-off date:
It is the same day every month and indicates the end of a period and the beginning of a new one. On the cut-off date, all the expenses you made during the month are added, also indicating that it is time to pay them to the bank.
The payment deadline:
It is the last day you have to pay the balance on the Cut-off Date and it is 20 days after this.
When making purchases with a credit card, take into account the following:
If you make purchases in the days following the Cut-off Date, that is, at the beginning of a new period, you will have around 50 days to settle this payment (the 30 days of the period and 20 days to pay before the deadline of pay).
If you make purchases days before your Cut-off Date, this is at the end of the period, you will have less time to pay, only the 20 days between the Cut-off Date and the Payment Deadline.
Ideally, you should not wait until the Payment Deadline, but make the payment in advance so that it is processed in time and you will not forget it, thus avoiding additional charges.
Learn about the benefits of making the payment before the cut-off date, an option that you also have available.
The Account Statement
After your cut-off date, the bank will send your account statement to the address you have registered or to your email, you can also check it in online banking or through your bank's mobile app.
It is recommended that before making your payments you review it to make sure that everything is in order. There, all the payments for the month, the deferred purchases in monthly payments, the interests, the commissions and the payments and credits that you make to the card are broken down.
The account statement will indicate your Cut-off Date and Payment Deadline, it will also tell you that you can make a Minimum Payment or a Payment to not generate interest, what is the difference?
It is an amount that the bank calculates according to the balance of your card. Making the minimum payment will prevent you from paying additional late fees, but interest will accrue on the outstanding balance for the month.
Total payment to not generate interest
It is calculated with all the expenses you made in the month plus the monthly charges without interest. If you settle the total of this payment before the Payment Deadline, you will not pay interest or late fees.
What if you don't pay anything?
If, on the other hand, you do not make any payment before the Deadline then you will have to pay late fees and accrued interest that are calculated based on the outstanding balance of your card.
Credit card costs
Remember that the use of your card can generate additional costs to your purchases:
- Annuity. Some cards do not have an annuity, others charge you a fixed fee each year. This fee varies depending on each card.
- The interests. They are charged only when you do not settle the full payment for the month before the payment deadline.
- Commissions. They also vary depending on each card and some do not have commissions. These can be charged for withdrawing cash from your card, checking the balance, using online banking, among other services, so it is important that you know exactly what and how much the commissions are.
- Late charges. They are charged only if your payment deadline has passed and you have not paid an amount equal to or greater than the minimum payment.
Points and rewards
One of the advantages of making your payments with a credit card is that many of them offer points and rewards that are generated with each purchase you make depending on the amount.
These accumulate and you can use them to pay with them in some establishments or to exchange them for products or services.
If this is one of your main motivations for having a credit card, we recommend that you review in detail the costs of having and using your card, because if the costs exceed the benefits of your credit card, it may not suit you.
The most important thing is that you understand that a credit card is not an extra income, it is a loan. Ideally, you should adjust not only to your income but to your ability to pay (income - fixed expenses - savings = ability to pay).
Remember that the costs and benefits of each card vary, so it is essential that you compare and choose the best one according to your goals and needs.
If in your case you do not have access to a credit card due to lack of credit history or having a negative score, Kueski can help you obtain immediate loans that will help you get out of a hurry, but they will also help you to generate a positive score in Credit Bureau opening the doors to a credit card.