What everyone must know about their credit card
First time credit card owners looking for a guide to help them become a credit card expert should look no further. This page will explain how a credit card works, how they can a valuable source of funds and why they can be an expensive way to access credit.
Credit card info for dummies
The world is turning digital and we need a way to get the things we want while also having some spare cash incase of emergencies. A credit card offers a short term cashflow solution and a convenient way to make payments.
Credit card inconvenience
Credit cards can be used at the shops, on the internet and at the ATM. Credit cards work well if you don’t overspend. The things you buy will cost you more if left unpaid. Also beware of credit card ATM withdrawals, they are one of the most expensive ways to get cash. Avoid cash advances if you can.
How do credit cards work?
This is what you should know about how a credit card works:
Using a credit card
- Shopping online. At the checkout page, enter your 16 digit account number printed on the front of the credit card, the expiry date and the CCV code. Verified By Visa and MasterCard SecureCode may then require whoever uses your credit card to enter a password before the transaction is processed.
- Shopping in-store. Press CREDIT on the point of sale terminal. Enter your PIN. You can also tap your credit card to make a contactless purchase under $100 at most major retailers.
- ATM withdrawals. You can also use your credit card to get cash from an ATM. Daily limits usually apply. A cash advance accrues interest at the cash advance rate, a cash advance fee is charged and interest-free days do not apply to cash advance transactions.
Credit card features
- Credit limit. A purchase or cash advance amount is deducted from your available credit. This is the limit you were assigned by the credit card provider.
- Statements. A credit card statement is issued about a month after you activate your new account. You can review your account activity, charges and minimum repayment information. Pay the minimum repayment by the due date to keep your account in good standing.
- Interest. The annual percentage rates of interest are shown on your credit card statement. Interest is calculated yearly based on your balance at the end of the statement period and paid monthly until you clear your balance.
- Interest free. Some credit cards have promotions for new applicants. Balance transfers and interest-free purchases are two common offers. These features can save you money in interest repayments.
You can also save money on interest by taking advantage of interest-free days on purchases. Most credit cards offer up to 55 days interest-free. You can make interest-free purchases from month to month as long as you pay your balance in full by the statement due date.
Types of credit cards
There are many different types of credit cards for different types of borrowers:
- Balance transfer credit cards. This credit card gives you a deal on your interest repayments for a limited time. Compare these types of credit cards.
- No annual fee credit cards. These credit cards don’t cost anything to own. Good for people who want a card for emergencies only. Learn more and compare $0 Fee Cards.
- Low rate credit cards. These cards cost less to spend with. Low rate cards are good for people who use their credit card often but don’t want to pay for credit card extras. Compare some low rate options.
- Rewards credit cards. Earn rewards or frequent flyer points on eligible purchases. You pay for the rewards points through the card’s annual fee and purchase rate of interest. These products are good for big spenders.
- Platinum, diamond and black credit cards. These credit cards offer the most and cost the most. These types of products are designed to appeal to the affluent segment of the market.
Visa, MasterCard and American Express
Visa, MasterCard and American Express are the card processors. The bank or financial institution you applied with are the card provider and the ones you pay your bill too. Card processors, on the other hand, provide the digital highway for credit card transactions to take place. Visa and MasterCard branded cards are accepted in about an equal number of places. American Express is also accepted worldwide, though not as widely as Visa and MasterCard.Back to top
What are the pros and cons of using a credit card?
- Convenience. Credit cards are widely accepted and offer short term access to credit.
- Bonuses. Some credit cards have extras like complimentary insurance and airport lounge passes.
- Interest-free. Most credit cards offer up to 55 days interest-free. This is an incentive from the card provider so you pay back everything you’ve spent at the end of the month. Some credit cards even have extended interest-free promotions for new customers.
- Temptation. The temptation to overspend. You can place daily limits on credit card purchases and cash advances if this is a concern.
- Fees. You may need to pay an annual fee to own a credit card. There are also cash advance fees, late payment fees, international transaction fees and more.
- Interest on interest. Interest is charged on interest if you have unpaid purchases and cash advances from previous months. Debt can accumulate quickly when interest compounds.
- Annual fees. Many cards charge annual fees, though how much you’ll be expected to pay will vary from card to card.
- Rewards. Rewards cards are only rewarding when you get back more than what you pay in card fees.
Frequently Asked Questions
How do I know what my credit limit will be?
Credit card providers have their own systems for assigning credit card credit limits. You can request a credit limit when you apply for a credit card. The card provider will approve this request or set a new credit limit. Your credit limit is set by calculating your income and assets against your debts and expenses.
How do I increase or decrease my credit limit?
You can request a credit limit increase online, over the phone or in writing. If your circumstances have not changed since you opened the account, and your debt has increased, a limit increase may be a long shot. You can request a credit limit decrease by contacting your bank and asking for a reduction in your available credit. Minimum and maximum credit limits do apply for each different product.
When do I get interest free days?
Interest free days is a credit card feature that offers an interest free period on purchases if you don’t carry a balance from the previous month. See our guide to understand how interest-free credit cards work.
How do I cancel a credit card?
You can cancel a credit card at any time if the account does not have a balance. There are no minimum lock in terms. The credit provider can usually do this over the phone.