So you are at this fancy restaurant with your partner. The restaurant is expensive and the bill comes up to a hefty sum. Now, what would anyone normally do? Pay cash? Not likely. With the easy availability of credit today, you would end up using your credit card.
Credit card: What is it?
A credit card is part of a system of payments named after the small plastic card issued to users of the system. It is a card entitling its holder to buy goods and services based on the holders promise to pay for these goods and services. The issuer of the card grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user.
How does it work?
After you or the cashier swipes your credit card through a reader, the EDC software at the point-of-sale (POS) terminal of the establishment that you are using your credit card at dials a stored telephone number (using a modem) to call an acquirer. An acquirer is an organization that collects credit-authentication requests from merchants and provides the merchants with a payment guarantee. Put simply, the card is swiped at the establishment>the bank or financial institution is contacted>authenticity is established>payment is approved>receipt is received.
The Pros and Cons
Pros Cons The Charges Dos and Don't s
Dos and Don't s
Make wise decisions about purchasing items you need versus those you simply want. It is important to distinguish between the two.
Use your credit card to make everyday purchases like food, clothing, and petrol. Using your credit card as a substitute for cash will land you in unnecessary debt.
Pay on time, within the due date. Consecutive missed payments will make you defaulter and result in a poor credit score.
Get into the habit of making minimum-only payments. Making only the minimum payment each month increases the amount of time it will take to pay off your debt.
Stay within 30% of your credit limit.
Use your credit card to buy things you can't afford.
Read your credit card statement carefully.
Withdraw cash from an ATM using your credit card. Not only will you be charged a withdrawal fee, but the interest will levied from the moment the cash is withdrawn.
A prudent credit card user can easily reap its benefits with benefits such as points accumulated on shopping with the credit card and other loyalty programmes.
Credit cards can quickly turn from being a blessing during emergencies to a curse when its uncontrolled use hits your wallet. Always remember to ask yourself: Do I need this thing that I am buying? Can I make cash payment instead? Keep yourself debt free. - Rediff.Com