Credit card and overdraft

Credit card and overdraft

Credit card is a separate bank card for payment, and the funds are provided by the bank. The card always has a limit, that is an amount that the cardholder can freely use in accordance with the terms of the agreement. If the client repays on time, the limit may be increased. You can not store your own savings on it.

 

There exists a similar mechanism called overdraft. This is an opportunity to pay with money taken on credit from a debit card, if your own money is out.

 

Let’s compare the pros and cons of a credit card and debit card with overdraft.

 

Characteristic	Credit Card	Debit Card with Overdraft
Holder Funds	N/A	Available limit and client funds are shown, sometimes they can be added up
Loan repayments	Fixed monthly amount	When replenishing the account, the debt is repaid first, then the money is credited to the debit account
Cash withdrawal	Interest is charged by the bank	At the same rate as your own funds
Pros	1. Grace repayment period 2. Funds received on a regular basis, such as salaries, cannot be completely debited on account of debt repayment, as they are credited to a separate account.	1. Cash withdrawal without interest. 2. There is no need to check if there are enough funds to purchase. 3. Service fee for only 1 card.

 

 

Credit Card History

 

According to the legend, credit cards were invented by founders of Diners Club. The story tells that a year before the company establishment, rich friends met in a restaurant. One of them, Frank McNamar, could not pay for himself, and had to call his wife with a request to bring money to the restaurant. This situation inspired Frank to come up with an idea of a registered card, as carrying one small card is much easier and safer than a bundle of cash.

 

About a year later, friends founded Diners Club. The club issued cards for paying in restaurants that collaborated with them. At the end of the month, cardholders received an invoice that had to be paid within 2 weeks. The amount of 5-7% for the purchase was paid not by the buyer, but by the seller, since sales were supposed to increase. Credit card holders paid $ 5 per year for membership in the club.

 

 

Varieties and Elements

 

Credit cards can be classified by their:

 

1. Design.
2. Standard cards. They have only a magnetic strip for data storage. Today, they are retiring from the scene.
3. Cards with a They can store all data on operations with the card. They have a higher level of protection and are gradually displacing the previous cards.
4. Capability.
5. Standard cards. The most common. They have a basic set of services, such as cash withdrawal and payment for purchases. Cost of service is relatively low.
6. Gold and Platinum cards. Their holders have additional bonuses, for example, insurance and immediate bank service. Annual service fee is much
7. Co-branded cards. Similar to the standard card with additional bonuses from partners (shops, manufacturers, airlines).
8. Payment system.
9. International. It is more profitable to use in the USA and Latin America.
10. International. It is more profitable to use in the EU countries.
11. MIR. Russian. Valid in Armenia, Belarus, Kazakhstan, Turkey and some EAEU countries.
12. Co-badged cards. A card with 2 payment systems, one of which is local and the other one is international.

 

In most cases, all credit cards contain 16 digits number (the card number differs from the account number), expiry date, security code – CVC or CVV, logo of the payment system, field for the holder signature. The number, expiry date and security code are needed for payment online.

 

If there is no signature on the card, it is considered invalid. Logo of the payment system indicate in which countries it is applicable.

 

 

How to choose a credit card? What’s worth special attention?

 

The first thing you should pay attention to when choosing a credit card is the grace period. This is the period during which you can repay the debt without interest. The longer the grace period lasts, the better chance you have not to overpay.

 

The second thing is the interest rate. If you did not manage to pay off the debt within the grace period, you will have to overpay. The higher the rate is, the more you overpay. Since it is impossible to exactly predict whether you meet the deadline or not, it is better to have a card with the lowest possible interest rate.

 

The third indicator is the credit limit. If you are going to use the card for everyday life, this indicator is not so important. A large limit may be necessary if you plan to buy expensive items with a credit card.

 

The fourth indicator is an annual service fee. It is especially important to pay attention to it if you do not plan to use it frequently.

 

The fifth indicator is cashback. It is worth paying attention to the interest and the list of stores. It is important to remember that such stores can intentionally increase prices, and expensive service will completely nullify its advantages.

 

Summary. There is no ideal card that will meet all these criteria. Banks intentionally lower some indicators and overstate others. It is important to determine which of these indicators is more important to you, and what you can accept.

 

 

Recommendations for the use

1. Add SMS notifications and Internet banking to be aware of the balance on the account, all operations performed and to easily detect suspicious actions. Thanks to your mobile or Internet client, you can block the card in case of its loss or theft. You can also pay bills.
2. Never write down the password on the card nor store it in your wallet: thieves will not be able to withdraw your Never give password and security code to the so-called “bank employees”. Real bank employees have all required information.
3. Never give your credit card to others. Most cards issued recently have contactless payment technology. You do not need to know a password to make purchases using this technology. If fraudsters get the number, expiration date and security code (this information is indicated on the card), they will be able to make purchases via the Internet, even if they don’t possess a card.
4. Try not to withdraw money at an ATM, just pay for your purchases with your card – the interest will be lowered. If you choose a credit card with a cashback, the part of the amount spent will be re
5. Try not to withdraw more than 30% of the limit. Firstly, a smaller amount is easier to return. Secondly, it has a positive effect on your credit history. After a while, your limit will be
6. If you cannot pay the required amount on time, for example, you are in hospital, contact the bank and explain the situation. Most often, if you explain everything in advance, no penalties will be applied to you.
7. Do not use the card without urgent need, then you will avoid unnecessary
8. Deposit more than required. In this way, you can repay the debt earlier and pay less interest.