A credit card is handy for paying bills and buying things in Canada and outside Canada. It is a money-saving option for those who shop often, and they can conveniently carry it around. It is cost-effective because lots of shops offer money-back as a reward for those who use credit cards. Additionally, you can create a good credit history and this will help you develop good financial habits.
A brief explanation of a credit card
Credit and debit cards
People use credit cards to pay their bills, buy things, and conduct other financial transactions. They also use it to get cash from the ATM whenever they need it. A debit card also performs all the functions mentioned above. But you can’t use an empty debit card and expect to repay later This is where it differs.
Credit card
Your credit card is still useful when you’re short of money, only if you haven’t built a bad credit score. The unpaid bills would simply be taken as a loan. And the loan must be paid within a short period by you including any additional fees that comes with it. Immediately you reach the limit your financial institution set for you, your card will stop working.
Although both credit and debit cards nearly serve the same purpose, they’re slightly different. Read on to find out the pros and cons of a credit card.
Important facts about a credit card
- The probability of having interests on some credit cards is high, but this depends on your financial needs.
- It’s vital for users to always read the instructions to know what rewards their financial company has to offer.
- Card holders sometimes get rewards like points, cash backs, bonuses, and discounts.
- Limitations on the credit given to each card holder. The company will tell you this when you apply for one. The financial institution you get the card from determines the limit.
A credit limit
This is the largest amount card users can have on their credit cards. Most financial institutions issuing credit cards set this limit for their customers. Exceeding it means your card would be declined. As you start using the card, the money allotted to your card gradually reduces till you reach your limit. Once you reach the set amount, you have to repay the used credit. Otherwise, you can’t use that card again due to no credit.
Cedit card Benefits
- Protect users from fraudulent activities: Should you misplace your card, most credit companies reimburse their customers if an unauthorized party used their cards. The same happens if someone stole the card.
- Facilitate your credit building scores: An employee with an excellent credit seems trustworthy and reliable to employers. To achieve an excellent credit score, you must adhere to the stipulations and return back the money owed at the stipulated time.
- Customer rewards: Credit card users enjoy benefits like money back on usage of card, sales discounts, and so on.
- Some companies give zero interest on large payments valid for a specific time. Purchasing goods with a huge sum of money at that time, qualifies you to get the zero interest bonus.
- Those without money, can utilize their card to order for the items they want and make payment later. This makes life easier for people who have such cards.
- It’s a safer way of using money: This is because credit card holders don’t need to take cash everywhere, thereby protecting them from theft or pickpockets. They can simply use their card to buy goods worth thousands of dollars.
- It is easier to use and teaches you financial accountability whenever you go out.
Disadvantages
- A credit card user has a huge responsibility to repay the loan. If care is not taken, you may end up with bad credit scores, unpaid bills, and huge debts. Therefore, caution your spending and estimate your financial capability. It’s better to know your financial worth before signing up for one.
- Many credit card holders are tempted by the ability to spend huge money, knowing that it is a loan. Then they end up spending more than they can repay at the stipulated time.
- High-interest charges by most credit card issuing firms: Opening a credit account with a high interest firm will incur huge interest anytime you fall behind your monthly repayment.
ConclusionFinally, it is better to know your purcahse limit before embarking on a shopping spree with your credit card. Otherwise, your expenditure and debt may spiral out of control, thereby affecting your ability to pay back. This in return will hurt your credit score. You may even pay more than you were supposed to if you are late on your payment. This is why canadian banks always explain their credit card terms to customers who want credit cards.