When you use credit card, you actually loan money for purchase you will perform now, and pay later. At the end of month, you will get a report that will present your purchase, i.e. total amount you own and minimum amount you have to pay at that moment. If you pay entire debt, you will not have to pay interest. However, if you pay just presented minimum, you will have to pay interest on a remaining amount of debt.
Why use loan
Loan can be a useful tool in running your daily finances, providing flexible way to pay that can make your financial life easier. Responsible usage of credit card is an important step toward creating good credit history that will provide you financial benefits now and in future. Good credit history leads towards positive evaluation of credit abilities that is used by banks and other financial institutions. Here are three basic areas where credit cards provide advantage:
* Credit card can help you run your finances. You can follow and adjust your monthly spending by simply following monthly bank reports, which will also help with your monthly budget.
* Credit card provide several ways to purchase things
* Credit cards are excepted all over the world, even where they don’t accept checks (hotels, rent-a-car agencies, postal and phone orders, online shopping)
* Credit card is useful when you have to pay sudden larger unexpected expenses (fixing a car, medical expenses, new home appliances, etc.)
* Carrying a credit card provides more safety because you don’t have to carry cash and it also completely releases you from responsibility of unauthorized spending (after you report loss or card theft you are no longer responsible for any further unauthorized expenses)
* Majority of cards give grace period up to 50 days, without any additional charges or interest. However, the best practice is to always pay entire month’s spending, to save yourself from interest or fees
* You can use card to cover short-term expenses until your next regular income.
What is credit scoring and why is it important
Credit scoring or credit evaluation is calculation of different factors in your credit history and current loans. Financial institutions use credit scoring to determine do you spend responsibly (which also includes regular paying of loan rates and credit card debt). Credit scoring is determined in certain point range. Low grade means bad credit score and warns about highly risky person for further loan authorization. High grade tells that person has good credit ability and gives many advantages, including faster load approval and higher limit on credit cards.
What factors determine credit score
-Credit history: Using several products in the same bank, and long term good relationship will increase your credit score
-Current loans: Regular payments of current loans and regular “servicing” of credit cards
-Loan elements: amount of requested loan, payment period and insurance instruments are most significant elements when calculating credit scoring
-Monthly income and home expenses: number of members of household, monthly incomes and expenses-these are also important elements for credit score
-stability of employment and monthly income: level of education, years of employment and regularity of monthly income
By miche llumb