What is a credit card?

A credit card is the most common form of consumer loan in the financial market today. This surprises many people, but by carrying a balance on your credit card you are in fact borrowing money for a fee, i.e. the interest rate. This is the same as a loan; however, credit cards, although convenient, are considered to be the most expensive type of consumer loan as they charge very high interest rates on balances.

Why use a credit card?

Most people have at least one credit card, while some have many more. They have largely simplified life by allowing consumers to buy items without having to have the cash on hand. Today, most shops, restaurants, hotels and businesses accept credit cards, making it a convenient way to pay for services. It also means that consumers don’t have to carry so much cash.

Credit cards also allow you to buy things that you may not be able to afford right away. By carrying a balance on your credit card, you can pay off purchases over time. Credit cards are also accepted all over the world, which means that there is less need for cash when travelling.

Many credit card companies also offer all kinds of points and mileage programmes. This means that you can earn points with your favourite airline for travel or points to redeem for goods and services.

How to get a credit card?

Credit cards are now issued by a range of financial institutions, not just banks. Credit unions, building societies, airlines and even department stores all offer them to consumers. Most will require you to submit an application form before a credit check is performed to check that you qualify. Usually this process takes a few weeks or less. Credit card companies will also set your credit limit in accordance to your earnings and credit rating – the better your credit rating, the higher your credit card limit will be set.

Some tips for using credit cards

Credit cards have become so convenient, and in many cases so easy to obtain, that many people have two or three or more. However, with this easy credit, many consumers get into trouble, spending more than they can really afford. To avoid this, it is better limit the number of cards and pay off balances as soon as possible.

Although credit cards are convenient, they are also considered to be one of the most expensive forms of consumer credit. As a consumer, you pay a price for the convenience of using the card with a higher than average interest rate.

Credit card fraud is also rampant, so you should always take care when using your card. Make sure you check your statements every month and query any unknown charges right away. When using credit cards overseas, it is always a good idea to keep your card with you when paying for services.

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