What is a Credit Card?
Credit cards offer convenience, consumer protections, and a quick way to build good credit. That is while assuming you use them responsibly. Using them unwisely can seriously affect your credit, which ultimately affects your ability to borrow money in the future.
A Credit Card is a plastic or metal card that allows you to access a line of credit provided by the bank issuing the card. Every time you pay for something with a credit card, you’re borrowing money from the card issuer to cover the purchase. You then have to pay that money back, either in full at the end of the month or over time.
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How do Credit Cards work?
When you’re approved for a credit card, the bank authorizes a credit limit to be used at your discretion. Your credit limit is the maximum amount you can borrow. It depends on factors like your income, your other debts, and how much available credit you have on other cards.
Payment networks like Visa, Mastercard, Discover, and American Express process credit card transactions. They ensure that the money for the purchase is transferred to the merchant and that the correct cardholder gets billed.
When your bill comes, you have a few options. You can pay a certain minimum amount, or pay the whole balance in full, or pay some amount in between. Paying just the minimum every month is the most expensive option since it will cost you the most in interest. Paying in full is the best option. This is because paying in full provides you a grace period that allows you to avoid paying any interest on purchases at all.
Your credit card issuer reports your payments to the credit bureaus. Your payment history accounts for 35% of your credit score.
Advantages of Personal Credit Cards
Why should you get a Personal Credit Card?
- Rewards and Bonuses: Credit Cards have some rewards and bonuses attached to them. The bonus could help you start an emergency fund or take a trip. Rewards give you back some of the money you spend.
- Building Credit: Establishing a good payment history helps improve your credit. More successful, timely payments help improve your credit score. Improved credit scores can help you borrow money in the future at a lower rate
- Flexible: Establishing a good payment history helps improve your credit. More successful, timely payments help improve your credit score. Improved credit scores can help you borrow money in the future at a lower rate
- Easy Qualification: Qualifying for a credit card is much easier than qualifying for traditional sources of finance such as a bank loan. Even if you don’t have an elaborate credit history, you can still obtain a credit card easily.
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Types of Personal Credit Cards
Cash Back Cards
These cards give you money back. You can usually get that money as a check or a deposit into a bank account, or use it to reduce your balance.
Airline/Hotel Credit Cards
These cards give you miles or points that you can redeem for free flights or stays with the card's partner airline or hotel chain.
General Travel Cards
They give you points that you can use to pay for any travel expenses. They're more flexible than branded airline or hotel cards.
Store Credit Cards
These cards reward you for loyalty by giving you discounts or other benefits for shopping at the store that provided the card.
These cards don't give you rewards. Instead, they provide value with a lower interest rate, making it less expensive to carry a balance.
Balance Transfer Cards
These let you move your debt from another issuer to take advantage of a lower interest rate. These cards usually require good credit.
Documents Required to apply for a Personal Credit Card
- Personal Identity Proof
- Contact Details
- Proof of Citizenship
- Social Security Number
- Residential Address
- Bank Records
- Employment and Income Information
- Financial Information, including existing debts
Essential Tips to use your Personal Credit Card efficiently
Here are some good practices to adopt, related to Credit Cards:
- Pay your bill every month on time and in full
- Maintain your balance below 30% of your available credit
- Wait for a minimum of six months between credit card applications
- Review your account online every week to track spending and avoid fraud
- Keep no-annual-fee credit cards open and active to avoid hurting your credit score