- In the modern era, there are so many payment methods available out there, but a payment card is one of the most familiar, easy and reliable methods of making a payment. All of these cards are also divided into several categories, some help you build your credit score and others do not. In order to get any of these cards, first, you have to provide several government documents for identity verification purpose.
We all use some types of payment cards to make payments and before we get into more details how you can get your first payment card and what all you need to know, let us discuss some of the different types of payment cards.
A credit card as the name suggests, it provides you the facility to make purchases on credit facility. While you spend and make a purchase on credit, you have to pay the bill of the credit card amounting equal to the purchases and spending you made throughout the month. The whole amount is to be paid at the end of that month.
Properly utilizing your card and paying your bill on time will help you in building a positive credit history; it will save you money for future loans and purchases too. The immediate benefits of having a credit card are extra purchasing power.
Secured and unsecured cards
Credit cards can be classified into two categories – secured and unsecured. Need not be confused by the word “secured.” These credit cards are secured by a down payment. While these secured cards can help you build a credit history, the biggest negative aspect is that you are borrowing against your own money to do it. Simply, you are paying a fee to use your own money. On the other hand, unsecured credit cards are different as they allow you to borrow the bank’s money without a deposit.
Charge cards provide nearly unlimited credit limits for cardholders. The big point of difference between a charge card and credit card is that any charges made with a charge card must be paid in full by the end of every month. There is no minimum balance. In the event of a failure in payment of your full balance on a charge card, you will have to face an extra penalty.
A debit card and bank account are connected, that means using a debit card will automatically deplete your bank account’s funds. You will see a credit network like VISA or Mastercard logo on them. This means that the debit card is accepted in many places easily. All thing you need to remember is that using a debit card will not build your credit history.
You can buy prepaid cards at department stores. After you buy a prepaid card, you have to load money into it. When your available balance becomes zero, you can add money to it again. Just like a debit card, the prepaid card also eliminates the need to carry money and also it will not build your credit history.
Here is all you need to know before getting your first payment card
As discussed above, you are more likely to get a debit card when you open a new account in a bank. While you can use a debit card to withdraw or deposit cash from an ATM, it has nothing to do with your credit score. A credit card is very helpful as far as the credit score is concerned, therefore let us see what all other things you need to know before you get your first payment (credit) card.
1. Spending habits
Before you choose a card for yourself, the first question is how you’re gonna use it. Are you going to pay off the card every month without any failure, or do you expect to carry a balance from month to month?
Payment of the bill in full every month will keep you away from the tension of interest rates. All you need to do is find the best card with no annual fee and a longer grace period so you don’t get hit with a finance charge.
2. Interest rate
There is two type of annual percentage rate or APR, fixed or a variable rate that is tied to another financial indicator, most commonly the prime rate. In a fixed-rate card, you know already what the interest rate will be from month to month, but with a card with the variable rate, it fluctuates. However, even a card with a fixed interest rate can change based on certain situations, such as paying your card or any card bill late or going over your limit.
3. Credit limit
4. Fees and penalties
There are so many ways in which a card issuer to make money off you. Some charges include fees for transactions, such as balance transfers and cash advances, or for asking to increase your credit limit or make a payment by phone. Also, there are penalty charges for paying your bill late or going over your credit limit (they don’t decline your card; they just sock you with a fee for it).
The one big thing you have to consider is how the finance charge is calculated if you’re going to carry a balance. A common method is an average daily balance, in which the daily balances are added together and then divided by the number of days in the billing cycle. You need to stay away from credit cards that compute the balance using two billing cycles; this will cost you more money as finance fees. There are so many of cards that don’t use this method.