How credit card works
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What is a credit card and how does it work?

You must have seen advertisements about credit cards on mobile or television every day. Are credit cards really as useful as they are shown in advertisements? Each bank is issuing different types of credit cards in which the claims of giving huge benefits to the consumer are made. In today's post, we will discuss about this topic whether it is beneficial to use a credit card to the defense person or not. If planning to use a credit card, which credit card will be the best.

First let's talk about what a credit card is and how it works.

What are credit cards?

Credit cards give the user a credit limit every month. You can buy any product using the credit card limit. For example, if a person's credit card limit is Rs 30000, then he can buy any product or service using the credit card within a month. Because the credit card limit is Rs 30000, then that person will be able to buy only products up to Rs 30000 from the market or online.

Each bank gives about 45 days to 50 days for credit card payment which is also called interest free period. During this time the credit card user does not have to pay any interest for the credit limit used with the credit card. After 45 - 50 days the user can pay the bill of the credit card used. In other words, the credit card provides interest free loan facility for 45 to 50 days.

First of all, it is important to know what are the terms used in credit cards. First let's talk about what is the credit limit used in a credit card.

Credit card limit

A limit is created by the bank for each credit card. Up to that limit the products can be purchased in a month using the credit card. Credit card limits are decided by the bank keeping in mind the credit score, job and income of the user. High credit limit is given to the person who has good credit score and salary is also high.

Credit card billing cycle

Let's assume a person Kuldeep Kumar who has a credit card of a bank whose limit is Rs 30000. The billing cycle of this credit card starts from the 1st of every month. That is, the credit card bill will start from the 1st of every month. If the billing cycles are of 30 days, the billing cycle for Kuldeep Kumar's credit card will be from 1st to 30th of the month.

That is, from the 1st to the 30th, whatever credit card transactions happen, their bill will come together. This is called the credit card billing cycle.

Credit Card due date

Credit card due date is the last date for paying credit card bills. That is, on paying the bill till this date, you do not have to pay any interest or penalty. If the billing cycle is from the 1st to the 30th, the statement on that credit card will be generated on the 31st of every month. If the month is of 30 days then the statement will be ready on the next day. Credit card due dates are after 15 to 20 days of the billing cycle.

For example, the billing cycle for the month of January is January 1 to January 30, so the due date for paying the bill will be February 20. That is, from January 1 to January 30, the statement of any purchase made using the credit card will be issued on January 31. That bill user has to pay on or before the due date that is February 20.

If the credit card user pays the bill by February 20, then he does not have to pay any interest or penalty. The due date and billing cycle of any credit card bill can be checked in the credit card statement.

From the information given above, you must have understood what is a credit card and how it works. Now let's talk about what fees or charges the user has to pay in the credit card.

Credit Card APR

If the credit card user does not pay the credit card bill on time, then he has to pay interest which is called APR (Annual Percentage Rate). The interest rates of credit cards are much higher than that of loans. Credit card interest rate varies from bank to bank, which is around 2.5% to 3.5% monthly. 

As in the above example the due date of the bill was February 20, if the user makes the payment of the bill after February 20, then he has to pay the interest on each day as per the APR. By paying the credit card bill on time, no interest has to be paid. Therefore, it is very important to pay the credit card bill on time.

For your information, let us tell you that the credit card can be used only for shopping or any bill payment. If you withdraw money from an ATM using a credit card, the user has to pay interest from day one.

Minimum amount due

A minimum amount due option is available while paying the credit card bill. If the user is not able to pay the bill for the whole month, then he can pay the minimum amount due. The minimum amount due is about 5% of the total bill. For example, if a user's credit card bill for a month is Rs 10000, then he can also pay the minimum amount due which will be around Rs 500. The user has to pay interest on the balance amount. By making the minimum amount due payment on time, the user does not have to pay late payment fees.

Late payment fee

If a credit card user does not pay the credit card bill on time, then he has to pay the late payment fee along with the interest. But if the user pays the minimum amount on the credit card due date, then he does not get any late payment charges. It is necessary to pay a minimum amount due to avoid late payment penalty.

Annual Maintenance Fee

Banks charge the user an annual maintenance fee for the credit card. These fees are charged every year and the annual maintenance fee for all credit cards is different. The more features are available in the credit card, the higher the annual maintenance fee.

For your information, let us tell you that there are some credit cards in which the annual maintenance fee is zero, that is, you do not have to pay any annual maintenance fee. Some credit cards have zero annual maintenance fees in the first year and charge annual maintenance fees from the second year onwards. While there are some credit cards with zero lifetime annual maintenance fees.

Lifetime zero annual maintenance fee credit cards are the best for the defense person. 

Friends, this was important information related to credit card. Before using a credit card, it is very important for you to understand the things related to it well. 

Because this post has already become very long, so other important information related to credit card will come in the next post. In the coming post, we will talk about what are the benefits of credit card. Along with this, we will also tell which credit cards are best for the defense person and how to use the credit card so that maximum benefit can be received.

If you like the information, then definitely share it with other defense person by clicking on the Share button given at the beginning of the post. 

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