How a credit card works

When used properly, credit cards are a convenient financial tool. They allow you to pay for purchases in stores and online around the world, have a grace period of up to 3-4 months, during which you pay no interest to the bank. In contrast to the consumer credit, the card does not have to constantly “reopen”. Simply pay off the debt of the grace period and use the card to make new purchases; the available credit amount is replenished automatically.

What are credit cards and how do they work?

A credit card is a piece of plastic that allows you to use the funds in your credit account. The period in which you can spend the money is called “reportable” and is activated on the day the card is issued, the first day of the first payment or the first day of the calendar month – different banks have different conditions.
When issued, the card has a non-zero balance. The money available for spending is the credit given to you by the bank. You can spend it on goods and services, including communications charges, restaurant reservations, and school fees.

The credit card works like this:

  • You pay for a purchase within your available limit
  • No interest is charged until the end of the grace period.
  • If you repay the debt in full by the end of the grace period, you will have the full limit available in the new period
  • If you spend and repay partially, your credit limit is reduced by the amount owed
  • If you use up your limit in full, you will have no funds available in the new reporting period

Most credit cards with a grace period have a higher interest rate when withdrawing cash or transferring funds to individual credit cards, and for some products such transactions are generally not possible.

In addition, when using a credit card, the holder enjoys the same privileges as when using a debit card:

  1. Discounts and Privileges for Mastercard and Visa. These can be discounts on purchases in major chains and payment sites, increased bonuses of affiliate programs, discounts on travel, free access to business lounges in airports.
  2. Special bank services. Dedicated telephone support line, preferential exchange rate, higher rates on deposits, opportunity to open several cards, free life insurance for the whole family
  3. Participation in cashback programs.

Credit Limit

A credit limit is the amount you can spend. It depends on the customer’s ability to pay and proof of income.
Credit limit can be increased by active use and timely repayment of debts on the card. All transactions such as purchases in stores, payments on websites, auto-payments for cell phones, tax payments, as well as cash withdrawals and transfers to other cards reduce the balance available for spending. The interest charged for using the credit after the grace period does not reduce the available balance, but increases the amount owed.

What is a grace period?

A grace period is a period during which you do not pay any interest.Its duration is established by the bank.
Grace period duration varies with the different service packages, it can be as short as 30 days or more than 100. The client can choose a credit card with cash withdrawal options, a maximum limit, increased bonuses or cashback on all purchases, and a convenient grace period.

Unlike a debit card, a credit card requires not only a passport, but also proof of permanent income.

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