Effective Credit Card Management – Part I

In today’s world credit card have almost become a necessity. In addition of dispensing away with the need to carry cash, credit cards facilitate a wide range of transaction over internet. Like any other financial tool credit card if used responsibly can turn out to be of great convenience. This financial convenience however can easily land you in a financial mess if not used properly. Below are few FAQ’s regarding credit cards.

How to find the right card

All credit cards are not the same. The selection of right card is entirely based on your requirement. The factors to be taken into consideration are interest rates, annual fees, other fees, grace periods and aspects like cash back or other rewards for using the card. Be sure to check out the fine print to be sure that there are no hidden charges like closure fees, overseas transaction fees. These fees can vary, but are normally disclosed in the credit card terms. It is very important to read the terms and conditions carefully before taking the card.

Should credit cards be used for long term borrowing

Credit cards are meant for borrowing for short term or limited period of time. It is not advisable to use credit cards for long term borrowings. Typically all credit cards have an interest free period within which you can pay your bill. Interest is charged on the credit once the interest free period is over. Credit cards are great financial tool for those who want to take advantage of payment mechanism like interest free period or short term credit.

What are co- branded cards

In addition to having all the features of a normal credit card, Co-branded credit cards offer customers attractive deals on different products. They are credit cards, which are associated with a particular firm like an airlines or retail outlet. Every dollar spent on these cards results in accumulation of points with which you can get discounts on the products of the partnered firm. For instance with an airline cobranded credit card, with the accumulation of certain number of points one can get a free airline ticket or other benefits like upgradation to business class. Co-branded credit cards are currently one of the biggest trends in the credit-card industry. With everyone offering a basic credit card, for banks these cards offer a way to distinguish their products from their competitors. Today co-branded cards are available for a large number of sectors including travel, telecom, retail, entertainment and so on. You can choose a co-branded credit card based on your lifestyle and requirement. For instance if you are a frequent traveller you can take an airline co-branded credit card and avail benefits like faster check in, upgradation to business class and even free tickets.

With so many banks offering life time free credit cards how is that banks make profit from credit cards

When a credit card is swiped   the companies charge a discount fee. For example, if you spend $100, the credit card companies pay $99 to the merchant where you have shopped and charge 0.5 to 1% as fee from the merchant. The other way the banks make profits is from the interest charged from customers who don’t give back the credit within the 45 days or revolve credit or use credit card as an overdraft. So the merchant discount fee and income from interest are the two main income sources for the credit card companies.