Credit cards empower consumers to conveniently spend, while also having access to a credit facility 24/7.
Yet, very few of us really know how to use our credit card effectively. Jonathan De Beer, Head of Collections at FNB, clarifies misleading perceptions when it comes to credit card usage:
- They are bad and cause you to become indebted
Of course abusing your credit card could lead to debt issues. But when used correctly, your credit card can provide convenience and safety through day-to-day transacting when you need it most.
- Spending more is good for your credit score
When used responsibly, a credit card can help you build a good credit history. In addition, when you manage your spending responsibly it becomes a great tool to earn rewards and benefits.
- Credit cards have the highest interest rate compared to other loans
Interest rates on all credit facilities vary depending on your individual risk profile. Using money from a credit card can actually be less expensive than loans depending on the amount, what you want to use it for and when you will repay it back.
- Credit cards should just be used for emergencies
A credit card’s budget facility could be useful if you want to make a large purchase, but it can also be used for everyday purchases. If you prefund your credit card, you’ll be able to use it like you would use your cheque card and you’ll earn more rewards.
- Credit cards are not safe
This is not true. The onus is on the user to apply all available safety precautions and ensure that the card and pin are safe at all times.
- You start paying interest from the minute you use it
If you pay the full outstanding amount you owe on or before the due date on your monthly account statement, often no interest will be charged on your credit facility. Lenders often give you up to 55 days interest-free to repay your debt. However, if you don’t repay the full amount by the due date, the interest-free period is often deferred and interest accrues from the date of each transaction until you pay in full. Cash withdrawals mostly accrue interest from the date of withdrawal.
- It’s your money and you can use it as you like
This is money that the bank has lent you and cannot be used for illegal and online gambling activities. Furthermore, if you use the credit card outside the country, you must comply with applicable Exchange Control Regulations.
It is essential that you shop around for a credit card and know the value, benefits and any restrictions that may have been set out by the provider. The decision should not be solely based on the credit limit and interest rate you are charged, but also consider whether the card suits your lifestyle and needs.
Source: FNB. Images: Pixabay