How does a credit card work

How does a credit card work

You want to purchase something in the market but you got short of money. Now there will be two options, first one is that you can go back to your home without purchasing anything.

Else if you know any shopkeeper you can take a credit from a shopkeeper with some interest. This is how a credit card works. With the help of a credit card, you borrow money from the credit card providers (Financial institution). 

Credit card providers check your eligibility. Like your credit score or financial eligibility. If you are eligible, then they set a credit card limit of purchasing or using credit. They send you a short of card which is formally called credit card.

When you purchase anything from the credit card you can use only your full credit limit. If you cross the credit limit then you have to pay penalty to the credit card issuer. 

On the billing cycle, credit borrowers have to pay the amount with fixed interest to the credit card provider (Financial institution). If the borrower had paid the full amount within the due then they will not have to pay any interest. If they exceed the due period then they have to pay interest.

Why people use Credit card

1.Credit card are easy to use as compared to another cards and these cards are like prepaid cards. Most probably you can use these cards in each and every places.

2. These are quite safer than cash money. if in any case someone had stolen your card.Then you can make a call to the bank respectively. They will cancel your stolen card. In case fraudulent they gives your money back.

Why people use Credit card
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3. These are good when you are out of your pocket. If you have not cash to purchase next thing then you can pay it later. It may be be for a month or two months. You have to give small interest on that money only.

4. Sometimes freebies comes with the credit cards. If you are from india so SBI, Bank of Baroda, ICICI Banks provides cashbank and rewards Points.

Why some people don’t prefer Credit card

1.Credit card companies takes highest interest payment. If anyways you was not able to clear your credit balance each month then you have to pay interest at bigger amount. They charge higher as compared to personal loan.

2. Credit card companies like SBI, ICICI and Bank of baroda charges additional fees or yearly charges. They charge money for using cash as well.

3. If you are traveller then having a credit card can be little bit expensive for you. Credit card companies takes higher interest fees.

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