A credit card is issued to a user and allows him to buy goods and services based on the holder’s guarantee to pay the goods.
If the credit card is used properly, it can be of great benefit to the holder. This is how a credit card works: the card provider creates a revolving account for you and every time you use the card to pay for a certain commodity, the provider is effectively lending you the money.
At the end of every month, the holder gets a monthly statement that show the transactions made and it’s the holder’s obligation to make the payment. Failure to honor the timeline in which you are supposed to make the payment leads one to be charged interest, which could be either low or significantly high, depending on the credit card provider and its conditions.
Stores Credit Cards
Let me use a simple analogy to explain this better. A shopping mall may grant you a credit card. The credit card allows you to buy any goods or services you like in the shopping mall without giving out cash.
The amount of the good you buy is credited to your account. At the end of every month, you are supposed to give back the amount of money you have spent with your credit card to the shopping mall plus interest.
Doesn’t this method sound like a short-term loan? Credit card payments are, in fact, a very common type of debt. This is a flexible way of shopping as long as you are absolutely certain that you will be able to give back the money you have borrowed, otherwise credit cards could literally ruin your life.
Advantages of holding a credit card are;
- It offers a safe and convenient way of purchasing goods and services both in the UK and abroad particularly if one is purchasing over the internet, phone or mail.
- It offers free short-term credit as long as one will pay the full balance in due date as shown in the statement.
- It is a true global currency as credit cards can be used in every country around the world.
- It comes with incentives such as loyalty points or cash back.
- Protection against fraud especially if a criminal uses your card.
- Under Section 75 of the 1974 Consumer Credit Act card, If you pay for something with a credit card, valued between £100 and £30,000, that turns out to be faulty or which you do not receive because the company goes bust, you can claim a refund from the card provider. This offers purchase protection.
The disadvantages of holding a credit card include;
- One incurs interest if he is unable to pay up the balance at the agreed upon time.
- There is a limit to the amount one can spend on a credit card. In the UK, the limits range from £300 to £500.
Credit cards are a simple way of shopping as long as you are sure that you will be able to meet your obligations.