Credit Card is also known as plastic credit. It is issued by a bank or a similar financial institution that gives authority to the borrower to borrow funds at the point of sale. Credit Cards are a convenient substitute for cash and primarily used for short-term financing. A Credit Card is issued based on eligibility factors that include monthly income, credit history, credit score, company category and other related factors. The lending financial institution draws a credit limit for each borrower based on his/ her credit profile. Usually, the borrower must pay back the credit within 45 days of the purchase. In case, the cardholder delays or fails to pay back the amount, the bank charges interest on the borrowed amount.
Features and Benefits of Credit Card
There are several benefits of a Credit Card. The following benefits are:
Substitute of Cash:
Credit Cards are a substitute for cash. You can use your Credit Card to make purchases in person and online.
Depending on the Credit Card some financial institutions may charge a joining fee.
Repayment of Credit:
The borrower must repay the amount to the bank for the purchases made within a stipulated time (usually 30-50 days). If the borrower cannot repay the card balance, the bank will charge interest on the unpaid balance.
Credit Cards provide convenience to the borrowers as they can make purchases easily anywhere and anytime. Moreover, the payment can be made in domestic as well as in foreign currency.
Apart from the convenience, Credit Cards are beneficial in other ways. Credit Card users can earn reward points, enjoy discounts and cashbacks on purchases.
Helps in Building Credit History:
Credit Card details and repayment history can help the borrower build a strong credit rating. The sound repayment track of credit card bills impacts the credit score of the borrower.
Helpful in Emergencies:
A Credit Card could be helpful in an emergency. For example, an urgent requirement of cash for a medical emergency can be fulfilled by a Credit Card.
One of the great features of a Credit Card is the chip and pin system that secures the transactions from any kind of theft.
Amount of Penalty:
In case the user delays or fails to pay back the amount then the bank charges a percentage of the bill due as a penalty. Typically, the penalty ranges from 36% to 42%.
How is a Credit Card Used?
Whenever a purchase is made with a Credit Card, the users have to swipe their card at the point of sale. The system authenticates the identity of the user with the associated vendors and generates the receipt for both buyer and the seller. After the purchases for the current month is made, the bank sends a monthly bill that is required to be paid before the due date. In case the user fails to pay the bill before the due date the bank charges a penalty for the same in the form of interest that varies from bank to bank.
A credit card is also used for online transactions. The user has to fill in the card details including the card number and CVV code for authentication. The payment is made once the authentication is done.