How Credit Cards Work How You Can Improve Your Credit Score Here ph
What is a Credit Card
A credit card is the rectangle piece of plastic we carry in our wallets that allows us to buy all the stuff we need and want. It allows us to buy goods and services based on the promise we will pay for the goods. Credit cards are issued by financial institutions such as banks and they work a bit like a bank account where we are given credit so we can borrow money to pay merchants or take cash from an ATM machine. it’s different to a debit card as in this case the money is taken immediately from your bank account. It is also different to a charge card where the balance needs to be paid in full each month. With a credit card you don’t have to pay the amount in full each month, but anything unpaid will have interest charged on it. When applying for a credit card you must be approved by the provider before you are sent the card to use. There are different types of credit card including MasterCard, Visa and American Express. You will often see retailers and websites displaying the logos of the various credit cards they take. Making Purchases with a Credit Card When you use your credit card you are agreeing to pay the card issuer the money it cost to buy your purchase. You consent to pay for your goods in a store by entering your personal identification number (PIN) or by signing for your purchase. When purchasing goods over the phone or online electronic authorisation is used, this is known as a card not present transaction (CNP). When you make a purchase electronic verification will permit the merchant to confirm the card is valid and you have sufficient credit to cover the purchase. For card not present transactions, merchants will ask for additional information such as the security code printed on the back of the card, date of expiry, and billing address. Paying Your Credit Card Bill Every month, the card issuer will send a statement showing all purchases and any fees incurred. After receiving the statement the cardholder must pay the agreed minimum amount of the bill by a certain date. The credit issuer will charge interest on the amount owed if the balance is not paid in full, depending on the kind of card you have this will typically be at a much higher rate than most other forms of debt.
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If you fail to make the minimum payment by the due date, the issuer will probably impose a “late fee� and/or other penalties. To help prevent this, some cards arrange for automatic payments to be deducted from your bank account, avoiding such penalties, so long as the cardholder has sufficient funds to cover the bill. Interest charges Credit card issuers normally ignore interest charges if the balance is paid in full each month, but will charge full interest on the entire outstanding balance from the date of each purchase if the total balance is not paid. For example, if, a small amount of your bill remains unpaid, interest can be charged on the entire amount from the date of purchase until the payment is received. The exact way interest is charged is detailed in the original agreement and is something you should thoroughly investigate before taking out a credit card. The general formula used to work out the amount of interest to be charged is: annual percentage rate (APR)/100 x average daily balance (ADB)/365 x number of days the amount revolved before payment was made on the account. Because of the interest rate that can quickly accrue due to unpaid bills it is essential you stay on top of your spending and if you get behind you seek debt management advice immediately.
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Do's and Dont's of the Credit Card Game Here pf Futhermore: How Credit Cards Work
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