A credit card refers to a rectangular piece of metal or plastic issued by a bank or financial services company that allows you to borrow funds from your issuer. You can get the cards from banks, credit unions, and some mobile money wallets. There are various kinds of transactions that you can do with a debit card. You will learn how to pay someone with a credit card shortly.
In appearance, the card resembles a debit card, although they differ in that, a credit card allows you to borrow money while a debit card allows you to use money in your checking account. A credit card usually has a credit limit whereby you cannot borrow beyond that. A debit card only relies on the available balance in your account, and once it is over, the card is useless until you recharge your account once more.
There are two types of credit cards which include secured and unsecured. Secured credit cards allow one to deposit money as their security. The amount you deposit determines your borrowing limit. On the other hand, unsecured credit cards require some borrowing history. That means you should have credit scores. We have bad, fair, good, and excellent unsecured cards that you can get from various issuers.
How to get a credit card?
Getting a credit card is not difficult, especially if you are over 18 years old and possess the proper documents. In that case, an identification document is very important. Before getting a credit card, you must ask yourself if you have the correct scores or not. As I mentioned earlier, you can have a secured or unsecured card.
You can get a secured credit card if you do not have a borrowing history. The card will only require you to have money to act as security when getting your card. You can make your application online or at a physical branch. When applying online, you should visit the concerned issuer’s website to get started.
Once you fill in your details, you will make your deposit and wait for the card in your mail. When making your security deposit, it is possible to transfer money using the routing number and account number from another bank to the checking account associated with the debit card.
After that, you will activate it online or by phone call and start using it. Your credit limit goes hand in hand with your security deposit. The more you deposit, the higher your borrowing limit and vice versa.
When applying for an unsecured card, you need credit/FICO scores. We have various credit cards that go with your scores, as I mentioned earlier. You can get a bad, fair, good, or excellent credit card. The issuer usually contacts a hard inquiry to see if you qualify for the card you apply for and then suggests the most applicable one if you do not qualify for the one you apply for. For bad scores, your issuer may not run a credit check.
How does a credit card work?
A credit card allows one to buy goods and services online and in physical stores. Once you apply for one, you get a borrowing limit whereby you cannot spend beyond that. You should pay what you borrow at the end of every month and borrow again. When paying your debt, you usually do it with interest on top. That is how the issuers make money from you.
A card may also have other fees such as monthly, annual, foreign transactions, etc. You have to note that you should pay your debt on a particular date, and if you pay later, you may part with a late payment fee.
Credit cards allow you to grow your scores when you use them well. The card issuers usually report your payment practices to the credit bureaus, who then compile the information and develop your scores and a credit report.
As I mentioned earlier, secured credit cards require a security deposit. You need to know that once you attain favorable scores to get an unsecured credit card, your card issuer unlocks the funds in your checking account for use.
If you doubt where your money will go, then worry not. However, if you cannot repay your debt at any given time, your issuer uses the security deposit to recover their funds.
How to use a credit card?
Once you get your card, there are various ways you can use it. They include the following.
i) Buy goods and services
The primary use of a credit card is to pay for goods and services. When you visit a physical store, you only need to tap or swipe to pay at the register. When purchasing online, you have to provide the card details such as the card’s number, Security code, and CVV to make your payment. It is advisable to use your card with reputable stores to prevent fraud.
ii) Transfer to a bank account
You can get a cash advance from your card when you transfer funds from your card to a bank account. But can you transfer money from a credit card to a debit card? It is possible to carry out the transfer if you get a cash advance to a checking account that links with the debit card you want to transfer money to. When funds enter your checking account, they are available on your debit card.
iii) Build your scores
You can grow your scores using any credit card as long as you use it appropriately. However, if you are growing your scores from scratch, you can use a secured card, and you are good to go. A secured credit card is the best for building your credit scores.
How to pay someone with a credit card?
You may be planning to pay someone who has supplied some goods or given you some services, and the only source of money you have is your credit card. In such a case, you have no other alternative other than to use the card to make the required payment. The following are ways you can pay someone with a credit card.
i) Use Western Union
Western Union allows you to send money to people and companies domestically and internationally. When sending money, you can use your credit card to transfer money to the person to pick up at a location, receive in their bank account or their Western Union account.
ii) Use PayPal
PayPal allows you to use your credit card as a funding source to send money to others. You only need to add the card to your PayPal account, and you can pay the concerned party online. However, you have to part with some fees for using a credit card. Other platforms that allow you to make your payments with a credit card include Venmo, Cash App, and Apple Pay.
iii) Get a convenience check
You can also make your payments using a convenience check. You can get the check from your card issuer and present it to the person you want to pay. The check operates like regular checks as you can deposit it online or at a store. However, the check comes with some fees.
What is the difference between credit and debit cards?
There are differences between the two cards, which include the following.
- Credit cards allow you to borrow money from your issuer, while debit cards allow you to use money in a checking account. However, it is not a must you get a debit card for your checking account since it can function independently. You can even make an instant bank transfer without a debit card when you use a wire transfer.
- Credit cards allow you to grow your credit scores while debit cards do not.
- You must have a credit history or a security deposit to get a credit card, while you only need to open a checking account to get a debit card.
How are credit cards similar to debit cards?
There are various ways in which the two card types resemble each other. They include the following.
- Both cards have the card numbers, the expiry dates, and the CVV.
- They allow you to buy goods and services online and at physical stores.
- Both are plastic or metallic. Also, note that the two types of cards can be virtual, whereby you can only use them online.
- They both allow you to withdraw money at an ATM point.
- They all require you to have a checking account.
- Both allow you to transfer funds to other accounts. For example, you can transfer money from a debit card to a prepaid card online or through your mobile banking app.
Are credit cards secure?
Credit cards are secure payment cards since they have various security layers to protect you from fraud. The cards have PINs whereby only you should know, and thus no one can use them to withdraw money at an ATM.
Secondly, the cards’ online accounts have end-to-end encryption to ensure that third parties cannot access your details. Again, you benefit from Zero Liability Protection from most issuers so that you won’t be liable for any unauthorized use when you lose the card.
A credit card refers to a rectangular piece of metal or plastic issued by financial services companies that allow you to borrow funds from your issuer. You can get the cards from banks, credit unions, and some mobile money wallets.
The cards allow you to buy goods and services online and in stores, fund transactions for your mobile wallets such as PayPal and Venmo when making payments, and withdraw money at an ATM, among many uses. We have secured and unsecured credit cards.