How Does The Credit Card Work
Now that you've figured out what the American credit card is, and the difference with a debit card, you're probably interested in understanding how to use it!
To put it simply, a credit card has:
- its own account (a card for an account), available on the Internet,
- a fixed credit limit (maximum amount of expenditure per month),
- a fixed repayment date per month (to which the minimum amount must be refunded).
What is the monthly expense limit?
Once your bank accepts your credit card application, it will notify you of your credit line or credit limit, which is the maximum amount it will lend you per month. The credit limit is the maximum amount you can not spend per month. It can range from 500 to several thousand dollars, depending on your credit score. The more you have a better credit score, the more you will have a high credit limit. So as much to tell you that initially, expect to have the credit limit as low as possible ... With more than 6 months of seniority on my credit history, I could be eligible and get the most basic credit card Of my own bank (Chase), with a limit of $ 500 only!
Attention, the credit limit does not mean you absolutely have to spend up to this maximum, whereas! Expert advise not to spend more than 50% of your credit line. If it is $ 500, you will not have to spend more than $ 250 with this credit card. Some even say it is even better to spend only 20% of the credit line. I do not have enough distance to confirm that.
Why follow these rules? I'll answer you frankly ... I do not know yet! Apparently this is because good payers are seen as people who do not consume the full amount of what is made available to them by risk awareness ... Basically, it is to be sure to repay end. Do you know more about this?
One question that's going to be important to you is--
Paying by credit is good, but do you have to pay interest?
Compared to our credits in France, it is interesting to ask the question. Well, no, if you correctly repay your credit, that is the total amount you owe to your bank, every month on the date set, then you will not have to pay any fees. To find out, you can check your account online. You will have information on the minimum amount to pay, and your deadline.
However, be careful not to forget to pay back on time! If the minimum amount is not paid, high penalties apply. And if you pay only the minimum, interest will be charged for each day of delay, and rates can be very high, depending on your credit score. The lower it is, the higher the rates will be.
So in the beginning, be very careful! Mine has a rate of 12.5%, and it's not much for a start! Some are more than 25%! Forgetting will also negatively impact your credit history. Do not forget that you are traced, it will mean that you are not a good payer! You have understood, I hope, the credit card requires regular monitoring, and some discipline.
The aspects to be taken into account in order to incur a reasonable debt
Risks and Dangers
Credit card, attention to debt I do not know you, but about me, I was not used to this kind of practice. Consumer credits were banned from our parents. My mother made me morale when we were getting advertising for. The lesson, I retained it: you do not consume what you do not have!
Unfortunately, I had to set it aside when I arrived in the United States. For here we must go into debt to exist. And this system carries risks!
Be careful not to fall into the credit gear! You can have multiple credit cards, so multiply the borrowing limits (credit limit). Do not forget that this amount of money, which you see on the accounts of each of your credit cards, is not up to you!
As mentioned above, you can only repay by month the minimum set by the bank. Be careful not to abuse this system! You will, sooner or later, this money, with in addition, interest on every day of delay! Moreover, you will continue to consume, so be careful not to accumulate your debts! This game can very quickly become dangerous ... And the more cards you have, the more it is!
I remind you that the primary purpose of the credit card is to build your credit history in order to have the best credit score possible. So for reasonable use, I advise you to use it as a deferred debit card for your domestic purchases, and to refund your credit every month, in full, a few days before the deadline. This is how you increase your credit score! That's what we're doing, and we've never had a problem so far. It is also possible to set up (on-line, most often) automatic debits.
Advantages: different types of rewards
We've seen the risks and the dangers, but if you use your card correctly as I advise you, you can even win! Depending on the cards, you have a certain level of rewards. What's this ? It is a reward that is offered to you as points, when you have consumed properly, which can then be transformed into money. Cool, right?
5% cash back Chase credit card For example, on one of my credit cards, I have a cash back up to 5% of my expenses. Basically, it's a discount. From January to March, I have 5% discount in all supermarkets and grocery stores. The following month, it is for the purchase of gasoline (except that in New York, one does not need a car ...). To summarize, I pay the whole amount in the store, and then I get the refund on my card, called "cash back". It's not bad, is it?
Be careful not to confuse the cash back of the credit card as I just described, with the cash back of the credit card. When you arrive at the checkout of a store to pay with your debit card, the card reader will ask you if you want cash back. This is if you want to withdraw cash from your account (as at a distributor) free of charge, which is besides, very convenient!
But the rewards are not only cash back, but also miles (loyalty points) for airlines. It all depends on the type of card and your needs. If you fly often, you will need a credit card with loyalty points, etc.
But remember! If you do not have credit history yet, then you will not have too many choices at the beginning ... One thing is certain is that this system reflects the consumer society! And everything is based on this banking system! But that said, I do not buy more than usual ...
A brief summary of what you need to know
Once you have your credit card accepted by the bank, you must know:
-> Your credit limit, spending limit per month (do not spend more than 50% of this limit per month)
-> The repayment due date per month (date you must repay the whole if possible)
-> Access your account to track your expenses from your card, and repay online your debts monthly, before the due date
-> Your rewards (benefits) that will guide you on when and where it is best to use your card.
There is only to! Go to the next article, how to get a credit card without credit history!