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What is a credit card and how it works?

A credit card is a payment instrument that enables you to make purchases of goods and payment for services instead of using cash. You can use the credit card at any merchant, locally or internationally, which displays the same credit card brand as that on your credit card.

When you use your credit card, the credit card issuer will pay the merchant on your behalf first and bill you later. Once you get your monthly statement, you are required to settle at least the minimum repayment amount by the due date. An interest free period (usually 20 days) is granted by the credit card issuer where you do not have to pay any interest on the outstanding amount. The credit card issuer will impose finance charges (interest) on the outstanding amount if it is not paid by the due date.

A credit card can also be used for cash advances at Automated Teller Machines (ATMs) and at respective credit card issuers' counters. However, a cash advance fee may be charged for each cash advance transaction on top of the finance charge. There is also no interest free period for cash advance. The finance charge is calculated from the cash advance date.

The credit card issuer will send you a monthly credit card statement with details of your purchases including cash advances (if any), the total outstanding balance, the minimum payment amount and the payment due date.

A credit card is a convenient payment mode as it can be readily used for making purchases at merchant outlets. However, if you do not use your credit card carefully or settle your monthly statements on time, you may owe more than you can repay and find yourself having financial problems.

Back to Contents of Credit Card Transactions & You


Reprinted with permission from BankingInfo (A Consumer Education Programme)


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Knowledge Base ID :   1219
Last Reviewed :   May 22, 2014
Source :   BankingInfo
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