Answers To Frequently Asked Questions About Credit Cards

By Author: Shreya Eppili
Total Articles: 74
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The number of people who use credit has increased significantly. It has also become easy to get a Credit Card and enjoy its perks. However, if you are considering applying for one, you need to understand everything about this card and how it works. Here, we answer the most frequently asked queries about Credit Cards.
What is a Credit Card?
A Credit Card is a financial product lets you buy anything now and pay for it later. Each card comes with a fixed credit limit set by the Credit Card issuer depending on your eligibility criteria and credit scores. You can use this card to pay online and offline. However, the funds will not be debited from your Bank Account.
How does the card work?
A Credit Card lets you pay for the purchases up to a fixed credit limit. When you buy using the card, the issuer pays the merchant on your behalf. You are then responsible for repaying the money to the Credit Card issuer by the due date. You can pay the entire bill or make minimum monthly payments.
If you do not pay the ...
... balance entirely, interest is charged on the remaining amount according to the Credit Card interest rates.
What are the advantages of Credit Cards?
Credit Cards offer the following benefits:

You can use them as a financial backup during emergencies.
You can use the card responsibly to build a positive credit history.
You can conveniently shop online and offline with the card.

What is a Credit Card interest rate?
The Credit Card interest rate is also known as the finance charge. It is the rate Credit Card companies charge for the amount you borrow. The interest rate varies across Credit Card issuers. It also depends on the Credit Card you choose.
What is the Annual Percentage Rate?
The Annual Percentage Rate is the annualised interest rate charged on your Credit Card balance. This also includes any additional fees. The APR helps you understand the overall cost of borrowing on a yearly basis. While APR may work as an annual rate, issuers of Credit Cards usually use it monthly to calculate the interest.
How is interest charged on Credit Cards?
If you do not fully pay the outstanding dues on your card by the last date and carry a balance on your Credit Card, this remaining balance accrues interest. The interest is calculated using the APR and the average daily balance. It is then added to the outstanding balance on your Credit Card. Besides failing to pay your Credit Card bill entirely, you may also be charged interest in the following cases:

When you repay only the minimum amount due for that month.
When you use the card to withdraw cash from the ATM.

Conclusion
While a Credit Card offers many advantages, it is crucial to navigate carefully when using it.