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Credit Cards – Beyond the Basics

In “Understanding Credit Cards – The Basics”, we learnt how credit cards work, and understood the basic terms associated with it.

Here is an explanation of some more terms related to credit cards.

In “Understanding Credit Cards – The Basics”, we learnt how credit cards work, and understood the basic terms associated with it.

Now, let’s learn a little more about credit cards.

Frills offered with credit cards

Most banks offer some extras with the card in order to attract more customers. This can be travel insurance, discounts in some stores, etc.

The card company may also invite you to special events or shows meant exclusively for card members.

Class of the credit card

The credit cards are classified as Silver, Gold and Platinum by the issuing banks. This is just to differentiate the cards – the credit limits, interest rates, annual fees and the various extras offered vary depending on the class of the card – there is no difference in the way they work.

This is more of a marketing gimmick to make the owners feel important. Silver credit cards are the most basic, and Platinum credit cards are supposed to be the most elite.

Annual Charges

Many banks charge an annual fee for the credit card. This depends on the bank, and on the class of the card. To attract customers, most banks waive the annual fee for the first year of the card.

But many banks also offer cards that do not have any annual fee – ever. These have come to be known as “Lifetime Free” credit cards.

Reward programs

Most cards have an associated reward program, or a loyalty program. Each time you spend using the card, you earn points proportional to the amount spent.

These points get accumulated over time, and once they reach a minimum threshold, you can redeem them for free gifts, for gift certificates, or for paying the annual fee of the card.

Co-branded cards

Many banks also tie-up with other companies, and offer something known as a co-branded credit card. Here, the credit card has the logo of the bank, as well as the logo of the other company on it.

This is to encourage spending on the products offered by the other company. Usually, you also earn extra rewards for these spends – at times, even double.

For example, a bank can issue a co-branded credit card along with a petroleum retailer – and every time you pay for petrol using that card, you would earn double the points you would otherwise earn!

Balance Transfer

What if you reach the credit limit for a card? You can not spend any more using it! And on top of that, you pay a heavy interest on the outstanding amount.

In this case, you can opt for something called a “Balance Transfer”. Here, you transfer your outstanding amount to another credit card (existing or new).

(Should you be doing this? No! Please read “How to use a credit card – the financially prudent way” for more)

Most credit card companies offer lower interest rates for balance transferred from another credit card, so you can end up saving a lot on interest.

Thus, you reduce your outstanding balance on your existing card, and create an outstanding balance on another card, usually at a lower interest rate. Thus, you save on your interest cost using balance transfer.

Note: Many credit card companies offer lower interest rate on balance transfers to acquire new customers!

Plastic Money

You might have heard this term being used in relation to credit cards – credit cards are also popularly known as Plastic Money.

The reason is quite obvious – the actual credit card is made up of plastic, and thus, it is called plastic money. Mystery solved!

To find out how credit cards work and to understand the basic terms associated with it, please read “Understanding Credit Cards – The Basics”.

To learn how credit cards should be used by financially prudent people, please read “How to use a credit card – the financially prudent way”.

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