Have You Ever Wondered How A Credit Card Works?
A credit card is one of the most tempting financial tools available to mankind today. But many people fail to understand the working procedure of a credit card and thus, accumulate a massive amount of debt in their credit account.
It might seem easy to lay your hands on anything you liked at an outlet and then use your credit card, which might seem the purpose of the credit card. But you need to realize that the boundaries defined for your credit card and utilize it within them.
It can be safely said that a credit card can help you do great savings or can properly destroy your investments. This is why it is so important to understand the working of a credit card.
Wells Fargo explains the world of credits and credit cards:
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WHAT IS A CREDIT CARD?
A credit card is a small plastic card issued by a bank or a financial institution to you. It contains all the information regarding your credit account. When you use your card to make a transaction, the seller or dealer uses this information to charge you.
WHY DO YOU NEED A CREDIT CARD ACCOUNT?
You use a credit card to make purchases from your credit card account. This account acts as a borrowing tool with a revolving credit. Putting it in simple terms, every time you make a transaction through your credit card, you borrow that much amount from your issuer. Or every time you purchase with your credit card, you do that with the issuer’s money instead of yours.
HOW DOES CREDIT CARD BALANCE WORK?
Each time a transaction is made through your credit card, the amount is added to your credit card balance. It is the amount borrowed by you from the issuer while making a transaction with your credit card, but yet to pay back.
This is where your ability to pay back the amount borrowed each month counts. Do not charge a credit balance more than you can repay at the end of each month. This will help you keep your credit balance in check and make it easier for you to pay back the amount.
EVER HEARD OF MINIMUM PAYMENT ON A CREDIT CARD?
A minimum payment is an amount you are supposed to pay every month in order to keep your credit card account healthy. It is calculated upon your credit card balance and is usually 2%-3%. It can also be the outstanding interest you owe with 1% of the balance.
A CREDIT CARD
The amount of money you owe on a credit card is subject to an annual percentage rate (APR) called the credit card interest or finance charge.
If a person makes more than the minimum payment, the issuer has to use the extra to pay down your largest balances first. This money will go to reduce your cash advance balance before it can reduce the balance for your daily purchases.
Read More – Check Wells Fargo Routing Number from Here.
ARE THERE DIFFERENT TYPES OF CREDIT CARDS?
The commonly used credit cards are as follows:
Charge Cards: A person is supposed to pay back the complete balance every month. This means the minimum payment will be same as the monthly charges on the card every time.
Rewards credit cards: These cards give reward points to a person on every transaction they make through it. These reward points can be cash back or points that can be redeemed for travel purchases or other goods.
Secured credit cards: The issuer asks for an amount of cash to be deposited as a security against the credit card balance. They prove to be a good option if a person wants to restore the credit. This is because secured credit cards are secured by the security, so they are easier to qualify for.
Retail cards: They are issued by a store or retailer instead of a bank or a financial institution. The credits card accounts are with the store also.
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