Lots of people use credit cards at least once in a day. They literally blended into our daily lives. These financial tools serve various purposes and benefits to the card holders. Ever wondered how credit cards can make your life easier? Continue reading.
For earning rewards and building your credit history, credit cards takes a major part. You can find so many types of credit cards. Choosing the right card that suits your lifestyle best requires many considerations. So where do you find it? Let us explore what credit cards are and find out how these handy financial tools can improve your spending power.
What Is a Credit Card?
A credit card is usually a financial tool. It will let you borrow funds up to a limit to make purchases and pay for services. Debit cards draw money from your bank account. But credit cards let you make purchases on credit.
The expectation is you will pay back the borrowed amount either in full or over time. You will receive a statement detailing your transactions and balance each month. Credit cards offer multiple benefits to cardholders.
It may include the ability to earn rewards and build a credit history. Cardholders will get financial access in emergency situations.
How Do Credit Cards Function?
Every cardholder should know the function of credit cards. When you use a credit card to make a purchase, the amount is charged to your credit account. Your credit card issuer then pays the merchant on your behalf. You are expected to repay the amount borrowed in full by the due date. You can split it as an EMI and pay overtime with interest.
Here is what else you need to know:
- Credit Limit: This is the maximum amount you can borrow on your card.
- Statement Balance: The total amount you owe at the end of the billing cycle.
- Minimum Payment: The smallest amount you must pay each month to keep your account in good standing.
- Annual Percentage Rate: The interest rate charged on outstanding balances.
Types of credit cards
There are so many types of credit cards available. Each type offers unique features suited to various needs. Below listed are the popular types of credit cards:
Travel credit cards
Travel credit cards are tailored for frequent travelers. These cards allow you to earn travel points and enjoy perks. It may include free checked bags and access to airport lounges. A travel credit card might provide 3 points per dollar spent on travel and dining. Cardholders will get complimentary access to airport lounges to improve their travel experience.
Business credit cards
Business credit cards are for managing business expenses. It offers features like detailed expense tracking and higher credit limits. A business credit card might provide detailed expense reports and additional rewards for transactions made on business expenses. Business owners can update their financial management and utilize the rewards on business-related purchases.
Student credit cards
Student credit cards are more accessible for young adults. They have lower credit limits and fewer barriers to approval. These cards help college students start building their credit history. A student credit card might offer no annual fee and cashback on select purchases. These cards provide an excellent way for students to manage their finances.
Co-branded credit cards
Co-branded credit cards are issued in partnership with a specific brand. It provides cardholders with unique rewards and benefits tied to that brand. These cards are perfect for loyal customers who frequently engage with the brand’s services. A co-branded card with a major airline might offer frequent flyer miles on all purchases. This improves travel rewards and provides added perks.
Premium credit cards
Premium credit cards offer excellent perks like exclusive access to events. They are best suited for high spenders seeking luxury benefits and exceptional service. A premium card might provide 24/7 assistance and VIP access to exclusive events.
How to get a credit card?
Selecting the right credit card involves evaluating your spending habits and needs. Explore the types of credit cards that match your criteria. Consider factors like rewards programs and interest rates.
You might intend to travel miles or build credit. Look for cards that offer benefits aligning with your lifestyle.
- Check Your Credit Score. Make sure it meets the requirements for the card you want.
- Research Credit Cards. Find a card that fits your needs.
- Complete the Application. Apply online or offline, providing personal details like income, employment, and Social Security number.
- Wait for Approval. The issuer will review your application and credit history.
- Receive Your Card. You will get your card in the mail after the approval.
- Read the Terms and Conditions. Understand the card features and fees.
- Build and maintain a good credit history by managing your card.
Final words
Credit cards are a versatile financial tool. The various types of credit cards suit different needs and preferences. You should know their functions to make the right choice that best fits your financial goals.
