How Does A Credit Card Work?

Credit Card Request

To obtain a credit card, you must apply for it. When it receives your request, the credit card issuer performs a credit check. The purpose of this check is to determine if you represent a good credit risk, ie if you can afford to borrow and if it is likely that you will repay the money borrowed. The issuer first examines your income. It also examines your credit history to find out if you are used to paying your bills on time. If you have a bad credit history, the issuer may refuse to provide you with a card or charge you a higher interest rate on late payments.

Credit Limit

The issuer sets a credit limit for each credit card. This is the maximum amount you can spend using your credit card before paying the balance. If you have little or no credit history, the issuer will usually give you a low credit limit. Then, if you pay your bills well, the issuer will likely agree to increase your credit limit.

Grace Period

When you make purchases with your credit card merchant account, you can benefit from an interest -free period , also called a grace period. To take advantage, you must pay the balance of your card in full no later than the due date indicated for the current month. The grace period for new purchases officially begins on the last date included in your monthly billing period.

If you pay the balance on your card in full by the due date indicated for the current month, the grace period applicable to new purchases is at least 21 days. You benefit from the 21-day grace period applicable to new purchases even if an unpaid balance is carried over from the previous month.

Types Of Credit Cards

There are different types of credit cards, for example bank cards (Visa, MasterCard, American Express, etc.), store cards (La Baie, Canadian Tire, etc.) and cards for travel and leisure activities (Diner’s Club, etc.) Their characteristics, reimbursement conditions and interest rates vary. The terms of a credit card loan are described in a credit card agreement.

Cash Advances

A credit card can also be used to obtain cash advances. However, it is best to only make this type of loan for short periods or in emergency situations. Here’s why. The interest rate that applies to cash advances is much higher than that which applies to certain other types of loans. In addition, you do not have any grace period, that is, you start paying interest from the date you get the cash advance until you have paid off the full advance amount.

Benefits

  • It allows you to borrow money instantly to make purchases.
  • It allows you to have less money on you.
  • It allows you to get cash advances.
  • His monthly statement includes a list of all your purchases.
  • It helps you build a credit history and get a good credit score.
  • There is no charge for this type of credit if you pay the card balance in full and on time.
  • It is a convenient payment method for purchases made on the Internet and by telephone.
  • Your liability is limited in the event of fraudulent use.
  • It may offer extended warranty and purchase protection, as well as other rewards and benefits.

Risks

  • It allows you to accumulate debts that you cannot afford to repay.
  • It can hurt your credit score if you often make late payments or if you don’t make payments.
  • It costs much more than some other types of credit, such as a line of credit or a personal loan, when you have to pay interest charges.