A credit card is a unique method of payment that enables you to buy things without paying cash. It is a very convenient way of payment. A credit card is a type of unsecured loan. The prevalence of cash is unlikely to be overtaken, but the credit card is the next best payment form, especially in those countries where e-commerce is a way of business.
A credit card helps you to pay for everything easily even when you don’t have the cash in hand. You don’t need to search out for ATMs. You can easily pay with a credit card.
Why credit cards have spending limits?
Daily spending limits on your credit cards are not so common. Some companies use these limits because they want to protect you if your card is stolen.
When you buy something the amount is added to your credit card. If you want to check that how much is left to spend you can simply subtract the balance from your card limit. When you buy the amount you spend increases and the amount of your credit card goes down.
Some companies set a limit of your credit that is lower than your credit card limit. So, you can only buy things according to your credit card limit. If you are deciding to buy in a very heavy amount that is up to your credit card limit then you have to call your credit issuer. Otherwise, you can only make transactions according to your card limit.
Cash Withdrawal Limit
Same as companies or banks set your credit card withdrawal limit. It is the maximum amount that is against your credit card balance. Your cash advance cap will be much smaller than your credit limit total. It’s typically set as a proportion of your credit limit, so your cash advance limit will also change if your credit card limit increases. You should use your card only in emergencies because banks charge an advance cash fee that is more than your ATMs fee. It is necessary to remember that currency transactions are often called cash advances, such as foreign currencies, cryptocurrencies, and stocks.
Additionally, the usual card limits may be limited for a brief period at periods of processing outages. When it comes to spending and withdrawal limits for credit cards and debit cards, each financial institution and credit card issuer has different policies in place. Before going to buy check your credit card limits or call your financial institution to avoid difficulty.
Credit Limits Affect Credit Scores
Another indicator that you are willing to use your credit responsibility is a low credit utilization score which sends a signal to potential lenders that if you meet other conditions, you may be a good candidate for their credit card items. Experts usually believe that, if possible, you should keep your credit utilization rate below 30%.
If you want to know your credit utilization rate just divide the total amount of your credit card balance by your total credit card limits.
You can find that increasing your credit limit will give your credit utilization is over 30 percent. And if you raise your credit limit, but keep the use of your credit card the same, your rate of credit usage would decrease. If you regularly have big balances on your accounts, this is a smart way to try to boost your credit.
If your credit card limit increases it means that you can spend more which might make it easier for you to overspend. If your credit usage ratio gets too high, this could cost you money and could reduce your credit scores.
How to increase credit limits
For a few reasons, you may want to raise your credit card. For instance, when it comes to how much you can expend, you could be looking for more versatility. Simply asking is the best way to try to raise your credit card. Most issuers of cards allow you via their website or over the phone to request an expanded credit limit.
When you request to increase your credit card limit the company or bank will inquire about your eligibility. This could reduce your ratings by a few points, or it could have a marginal impact on your ratings. Each card issuer will have its own rules and procedures regarding increases in the credit limit.
When your request for a card limit they will check your
- Your payment history
- Your credit scores
- Your income
- Your employment status
You should also consider applying for a new credit card if you are trying to lift your total credit limits rather than your credit limit on a particular card. Your new card will have its credit limit if you are accepted, regardless of the limits on your other cards, but note, this will cause a hard investigation and potentially have a negative effect on your credit scores.
Advantages of Credit Card
There are different advantages of a credit card.
- Practical and Convenient
Getting a credit card makes it possible for you to buy almost anything, even if you don’t have enough cash. Since most cards are commonly accepted in almost every store and access the globe.
When you shop, purchasing high priced goods with a credit call will save you the risk of snatching and the hassle of carrying large sums of money around. Moreover, it is also safer while traveling abroad to hold a credit card instead of large sums of cash.
- Help in Emergency
A credit card helps you in an emergency. The credit card has a feature of advance cash that allows the cardholders to withdraw from the card issuer a certain amount of cash. This is particularly helpful in unexpected circumstances, especially in a medical emergency.
- Saving and other Privileges
Credit cards offer lots of benefits today, including cashback, reward points, or any other special privileges such as selective merchant discounts. These advantages can be enjoyed by cardholders, who can save some money for a long time.
Disadvantages of Credit Cards
There are some disadvantages of a credit card.
Due to the ease and practicality of a credit card, you may be tempted to swipe your credit card at any given opportunity. As a consequence, without even realizing it, you might end up spending more than you can afford.
- Risk of Debt
If you overspend your card it can put you in a debt. Many people are facing this problem because they spend more than their card limits and this increases the debt burden. Even then the interest amount gets also increases.
- Payment of Interest
Every cardholder pays interest. Interest may be paid after the interest-free period on any unpaid credit card balances. The credit cardholders who cannot settle their balance in time have to pay interest more than their spending.
- Risk of Fraud
As we all know that having a credit card is safer than having cash. But carrying this payment technology is also a fraud. You may have to pay sometimes for the bills you didn’t swipe for.
Some Key Functions of Credit Card
Credit cards consist of many functions and they are very versatile nowadays. The key functions of credit card are following
- Economy in the use of Money
The use of metallic and paper notes is economized by the credit system. In modern society, financial instruments such as promissory notes, exchange bills, cheques and credit cards, etc. are used as money replacements. Thus they have minimized the expense of issuing metallic money and paper notes. Likewise, the dangers and inconveniences involved with cash transactions have been reduced or removed.
- Easy to Exchange
Cash instruments reduce cash transactions and thereby make it easier to expand the exchange spectrum and remit funds. They allow capital to be moved to areas where it can be made more economic use of.
- Help in Production
The credit system makes large-scale production simpler. In anticipation of demand, it stimulates and finances production. Nowadays, producers very frequently receive credit from banks to start and extend their activities. Also, farmers and small craftspeople depend on credit from banks for production. Wholesale and retail traders execute their bank credit trading operations.
It is correctly claimed that the credit system lubricates the manufacturing processes and keeps production wheels turning continuously. With the assistance of credit, there is a steady flow of products from the wholesaler to the manufacturer and from the latter to the customer.
- Promotion in Trading
As trade transfers can now be made without the transfer of funds or gold, exchange bills have expanded the reach of both internal and external trade. The commercial credit helps the purchasers to make purchases at appropriate times for the value earned. The credit system, therefore, helps merchants to tide over times of difficulty.
- Expansion of Bank Credit
This credit system helps banks to obtain a large amount of credit out of a limited deposit amount. This has contributed to the substantial expansion of bank deposits.
- Industries Financial Accommodation
Industries are equipped with short term credit from enemy commercial banks and development banks with long-term credit. This not only helps them to tide over the temporary financial rigour but also to retain stability in their operations.
- Beneficial for Consumers
Bank credit allows the consumers to buy products especially household things and to pay on an installment basis.
- Credit to the Government Sectors
The government loan also helps them to meet both temporary needs and requirements for development.
When the issue of credit is properly regulated, it helps to stabilize trade and reduce price volatility.
The credit cardholder can use the credit out of the limit.
- Charge Method
The holder can pay the cash at the end of the month. When the will pay cash no advance will be charged.
- Cash withdrawal
The best function of a credit card is to cash withdrawal. When you are in any difficulty you can get cash by using any ATM.
- For International Use
You can use your card in any country if your card is a member of a Visa Card or Master Card.
Perhaps the most interesting fact arising from the description of card functions is they are not debit cards. The debit would be made from the credit card account and not from the bank account of the owners, but it can be used to receive cash from the ATM.
There are numerous card features for different bank cards. Bank card functions truly rely on the individual bank itself.
Reasons of Using Credit Cards
Financial planning experts expend a lot of resources trying to discourage us. Many of us irresponsibly use credit cards and end up in debt. But if you responsibly use your credit card you can get a lot of advantages. It is better than a debit card.
When getting a new card, there is nothing like an initial bonus opportunity. Applicants with decent credit or excellent credit will sometimes get a bonus of $150 or more in return for spending a certain amount of $500 in the first several months of opening the account.
Other cards draw applicants for travel, gift, merchandise, statement credits, or checks with bonus loyalty points or miles that can be redeemed. In comparison with the regular debit card that comes with a bank checking account normally does not offer an initial incentive or an ongoing opportunity to receive rewards.
- Cash Back
In the United States, the cashback concept was discovered the first time and has been popularized. When you use your credit card you get 1% of your transactions rebated in the form of cashback. The notion has grown and evolved today. Now some cards are offering 2% or 3% and some are offering 6% of cashback. The best cards are only those cards that charge minimum fees and interest, thus providing a high rate of reward.
- Give Reward Points
Reward points allow the cardholders to spend one or more points per dollar. For some types of purchases, such as restaurants, food, or fuel, several incentives, credit cards offer bonus points. Points can be exchanged for flights, gift cards from distributors.
Paying with a credit card makes it easier from fraud and to prevent losses. When a thief uses your credit card, the money from your account is immediately gone. Same as having credit card is safer than having cash. Legitimate expenditures for which online payments or mailed checks have been scheduled may bounce, causing insufficient fees for funds and making your creditors unhappy. Your credit score can reduce if you skipped payments even if it is not your fault. It will take a while to undo the fraudulent transactions and return the money to your account while the bank investigates.
On the other hand, you are not out of pocket when your credit card is used fraudulently; you simply report the fraud to the credit card company. No one can ask about the charges until the credit card company solves the matter.
Credit card networks such as Visa and Master card have zero coverage of responsibility for fraudulent transactions as a way to promote the use of your card over cash and to verify.
- For Building Credit
Using a credit card wisely can give you a benefit if you have no credit or are attempting to boost your credit score because the credit card firm can report your payment behavior to the credit bureaus. However, debit card use does not appear on your credit report anywhere, so it does not help you to construct or boost your credit. This will help you to develop your credit history, even though you need to deposit some funds to get a secured credit card, and potentially apply for unsecured cards or larger loans.
- Universally Accepted
With a debit card, such transactions are very hard to make. But with a credit card, you can transactions of any type. For instance, you want to take a rented car or you want to stay in a hotel you will have an easier time. Rental car companies and hotels also prefer credit card customers because they can get rid of any harm or compensate their customers as well. Another explanation is that the broker does not know the final sum of your transactions until you have prepaid for your rental car or hotel stay, and thus has to block out a certain amount of your usable credit line to cover themselves from future charges they did not expect.
Many credit cards have different facilities like insurance that most people don’t about them. For instance, rental car insurance, travel insurance, and protection guarantees that can surpass the manufacturer’s warranties.
- Frequent-Flyer Miles
Almost all the rest predicates this perk. Back in the early 1980s, by establishing a relationship with the credit card against Citibank, American Airlines started offering customers a novel way to collect frequent-flyer miles while not traveling. Both domestic and foreign airlines now have at least one available credit card offered in a similar partnership with major issuers of credit cards.