A credit card may seem like another tool that helps you to make purchases but it is much more than that. When used carefully and responsibly, a credit card can help you build a good credit history, allowing you to get cheaper insurance, loans at the favorable interest rate, and even much more. In addition to this, some of the best credit cards can also help you earn amazing rewards on your everyday spends and protect those purchases in the case of damage or theft.

In simple words, a credit card can be more useful than your debit card if used in the right manner. So, if you are ready to buy your first credit card then here are some important things that you should know:

1. How Does A Credit Card Work?

A credit card is a small rectangular shape of plastic, graphite, or metallic alloy which represents a financial account. There is a magnetic strip on the back of the credit card that enables the cardholder to make payments.

When cardholders swipe their credit cards or they put their credit card account number online, they initiate a payment request for their purchases to the bank. The bank credits the merchant account when they receive the sale slip. Then, the charges are assembled and a bill to the card member at the end of every billing period. Either cardholders can pay the full outstanding balance or they can pay in easy to pay monthly installments, a privilege for which they have to pay additional interest charges.

2. What Is The Difference Between Credit Cards And Debit Cards?

With a debit card, cardholders pay merchants for their purchases using money withdrawn from their own bank account. With a credit card, cardholder are paying merchants through the issuer’s money, which means they have to repay the amount each month that they have spent.

3. How To Choose The Right Credit Card?

Before you choose the right credit card for you, make sure you analyze your spending habits and needs. There are several banks and financial institutions that offer a variety of credit cards. From air miles credit cards and cash back credit cards to rewards credit cards, you can opt for the credit card that perfectly matches your spending habits as well as your needs.

4. What Might Happen If Your Credit Card Has No Pre-Decided Spending Limit?

The first important thing you must know that if you need to make full payments on your credit card every month and it does not have any credit limit or interest rate then it is not a credit card rather it’s a ‘charge card’. A charge card (mainly offered by American Express) doesn’t keep your spending in check like the credit card.

However, your credit card always has a pre-determined spending limit known as the ‘credit limit’. Having a credit limit keeps a check on your spending using your credit card, hence, helping you to maintain your credit score positively.

5. Do Rewards Categories Change Every Year Without Notice?

Your bank may notify you when they make a change in reward categories from quarter to quarter. However, the reward categories may also change every year without any notice.

6. How Does A Grace Period Work?

A key benefit of credit card is you get a no-interest loan & grace period from 21 to 25 days. Here is how it works: If you have a credit card period of March 5 through April 4, with a due date of May 1. Any of the purchases made within this grace period can be made interest-free until the due date of payment. However, if you don’t pay the full amount of your outstanding balance on or before May 1, you will be charged interest on the average daily balance.

7. What Are The Interest Rates On The Transaction You Make?

Credit cards charge different interest rates for purchases, cash advances, and balance transfers. However, you don’t necessarily have to keep up with the cash advance or balance transfer interest rate if you know that you will never make such types of transactions. Well, you should always keep up with the interest rate for purchases.

8. What Is The Credit Limit & Penalty For Exceeding It?

The credit limit on your credit card is the amount that you are allowed to spend on it. Until and unless, you have accepted the over the limit charges, your credit card provider will decline the payment that would exceed your credit card limit. But if you have accepted it, make sure that you are already aware of the over-limit charges (or known as a penalty) for exceeding your credit card limit.

9. What Is the Cash Advance & Balance Transfer Fees?

Well, these two fees are not as important as like other credit card details if you know that you will never make these transactions. But if you know that you will make a balance transfer or cash advance transactions, then don’t forget to check the terms and conditions of your credit card to know about their fees. It may be more costly than you think.

Final Verdict!

These are some of the main things that you must know before you get your first credit card. Knowing these things is very essential as it will enable you to make the most of your credit card.


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