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How Do Credit Cards Work

The most lucrative piece of plastic ever created is the credit card. For those who have one of those card right now can still remember the first time they pulled out the card from the mail. There is so much excitement and it makes you feel like go on shopping and swipe your way through shops. Now, for those who don't have one yet of course are thinking of getting one of those priceless plastics. But before you sign up you have to understand first how credit cards work.

How do credit cards work? Is it just picking out an item and hand over your card to the counter and walk away? That is the obvious part, but what about the things that take place after your purchase and what happens the month after you bought your stuff? In theory credit cards had become more than just a cashless buying gadget. It also serves as an identification requirement for other related transactions such as renting a car, proof of age (because you can only get major credit cards if you are at least 18 years old and above) and proof of income if you are applying for loans. The big picture of what credit card is all about and how it works are normally stipulated in the fine prints of the application forms. You should find time to read the terms and conditions so that you would know how to use it wisely.

Credit cards work like a buying pass, you go to a shop pick you're an item, go to the cashier and have the attendant swipe your card and you're done. The bank systems will pick up the transaction record from the point of sale terminals and keep them on record until the cutoff date. After which, the bank will consolidate all your purchases and apply applicable charges like interest rates on every purchase you made and not for the entire billed amount. Credit cards have credit limits specified according to your credit status declaration. When you went over the limit, the bank will add financial charges such as over draft fee, penalty and so on. Then, the statement will be printed out and mailed to you.

There is what we call grace period in which the interest rates would not be applied, upon receiving your statement and paid it within the specified grace period the interest charges would be waived. If you wait until the payment due date, then you will need to pay the whole amount. If in case you failed to pay for that particular month, the late fees will be added to your next statement on top of your succeeding purchase amounts.

That is how credit cards work basically, but you can be watchful with your credit card usage to avoid unwanted charges like paying on time when you can and limit your buying habit using a credit card because if your reason for using credit cards is to save cash, well think again.

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