How Credit Cards Work?
Friends, in today’s digital age, credit cards are available to everyone. Many people have a credit card but do not know how to use it properly. This causes the chargers on the card to go up.
What is Credit card?
A credit card is a card that helps you make an immediate purchase. A credit card is a one type of physical card that can be used to make purchases any item, pay bills (electricity bill, postpaid bill, water bill, mobile recharge, etc.) or also use for withdraw cash. The simplest way to think of a credit card is as a type of short term loan.Even if you do not have money in your bank account, you can pay with a credit card. And then you can make the payment even after the month is over. Generally, how do we all make money out of the bank and make payments. And other methods also pay with debit card. Money is deducted from anything that is connected to our bank account.
But that is not the case with credit cards. The bank pays on our behalf in the credit card. At the end of the month, we have to pay the dues to the bank. And if it takes longer to pay, the bank charges high interest. A credit card is called a mini loan.
The bank gives us a plastic card. On which your name is written, a unique number is written, also written by expiry date.
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How is the payment being processed?
There are many companies that process payments such as Visa and Mastercard. Both are very popular companies. Normally these two companies provide one type of infrastructure to facilitate card transactions. The credit card that the bank gives you is a different card from these two companies.
Both of these companies are simply payment processing companies. We all know that the back of a credit card has a magnetic chip and a CVV number. It is very important to keep this number a secret. Anyone can withdraw money from your bank account if they find out. Fraud can happen to you.
All credit cards have a limit. Limit is how much money you can spend with that credit card. If your credit card limit is 50,000 then you cannot spend more than that. And how much this limit is depends on the bank. Knowing how much is your salary?, how much is your credit score?, the bank has provided credit limit. If your credit score is good then the bank will trust you and give you even higher credit limit.
The bank will not increase your card limit if you do not pay the loan installment and credit card bill on time. The bank may feel that there is a risk in giving you money. If they give you extra money, you will not be able to pay on time.
The bank gives you a grant to measure this risk. This is known as credit score. If your credit score is between 750 and 900, it means that the bank can trust you. There is no risk in giving you money. The bank will never trust you if your credit score is between 300 and 400.
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Advantages of Credit card
- Immediate Expenses Skill
- Less Risky To Use
- Rewards ,Insurance
How to choose the right credit card?
You will be given a credit card by your bank. Credit card no chargers and Hiddin fees are all decided by the bank. Some Hinge-level credit cards are hotter with batter reward points and more insurance. But their fees are also higher. And you also need to be aware of which payment network is involved.
We see that Visa and MasterCard are both famous networks but also American Express, Pupay, etc. Excessive Visa and MasterCard expires and American Express is less used. But American Network’s rewards are higher than other networks.
How bank make money with credit cards?
The bank charges you an annual card fee. You will need to make an annual payment to use certain credit cards. Apart from this, different fees are charged in many ways. If you do not pay on time, you will have to pay a fee.
If you withdraw cash from a card you have to pay 2% to 5% extra fee. Most of the time if you don’t pay on time then the fee seems to be higher. Its annual charge can go up to 30%. This fee is 3 times the interest of the loan. The bank gets more money from this extra interest. If all the credit card payments are made on time then the bank does not get any interest.
Credit cards are not widely used in some European countries. People in Europe don’t buy anything from EMI. So there are no more credit cards used.
Many credit card companies are also becoming famous in India. Such as Slice. The company does not charge an annual fee. And also offers extra rewards when offered. And also offers security benefits. And most of the repayment of this company is for 3 month while the normal credit card is only for 30 days. And there is no hidden charge either. And this company only operates on the Visa network.
You may have come to understand the disadvantages of credit cards. If you do not pay on time, the charges will increase day by day. And the amount of interest at one time will exceed the principal amount. Credit cards have a lot of hidden fees.