Understanding the Basics of Credit

Understanding the Basics of Credit

Understanding the Basics of Credit

Credit cards offer you security, convenience, and even rewards depending on your spending level. However, if cardholders do not properly handle it, they may face unfavorable effects like as worse credit scores or hidden costs.

Learn more about credit cards with these 9 terms:

  1. Annual Fee: A one-time fee for having a credit card. Some providers offer credit cards without any annual fees. 
  2. The Annual Percentage Rate (APR) is the annual interest rate on credit card balances. Balance-an amount of money.
  3.  In personal banking, this term refers to a sum of money in the form of savings or a checking account. In the field of credit, it refers to the amount of money included in the card.
  4.  Credit Bureau: an agency specializing in collecting information about consumers credit activity. The maximum amount that can be transferred to a credit card account.
  5. Credit rating: the financial institution's assessment of an individual's ability to manage debt.
  6.  It is essential to have a good credit rating if you want to borrow money or apply for a credit card or loan. Learn how you can maintain a strong credit score. The grace period is the period after the expiry of the specified period for paying the debit balance during which the cardholder can return the balance without incurring any interest or late fees. 
  7. Introductory interest rate: the rate of interest offered by credit card companies during the early stages of a loan.
  8. Confirm the introductory rate period and how much the benchmark interest rate will be after the introductory rate period expires. 
  9. Overdraft Protection: a banking service that allows you to link your checking account with your credit card to protect yourself from overdraft penalties or bounced checks when you don't have enough funds.

Advantages and disadvantages of Credit 

To ensure you get the most out of your credit cards and maintain a good credit rating, it is first necessary to understand the pros and cons of these cards so that you can maximize their benefits and reduce unnecessary costs.


Instant Purchasing Power: Credit cards can help you secure emergency expenses and give you greater flexibility to pay for them. Security: Unlike cash that goes to waste if you lose it, a credit card can be canceled when lost without any harm in most circumstances. In this case, you must hurry to report the loss or theft of the card to avoid its illegal use.

Expense Monitoring: Your credit card statement provides a detailed list of your monthly expenses, and this may help you better budget. Convenience: credit cards are more widely accepted than bank checks as a method of payment, as well as being faster to use. Invoice consolidation: Bills can be paid for automatically using credit cards, allowing multiple payments to be combined into a single amount. Using a credit card backed by a rewards program can earn you many benefits, including free travel.


The main downside to using credit cards is their potential cost in terms of interest and fees. It should therefore be used prudently by understanding these costs and acting accordingly. Be sure to keep track of your expenses to ensure that your credit card balance is fully repaid when it reaches its monthly due date.

The true value of credit card purchases

If you don't pay your credit cards monthly, the benefits of late payments mean you pay more than the value of the things you buy. Also, spending beyond your financial capabilities leads you to bear large burdens of debt and the benefits arising from them. 

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