Do we really know what a credit card is and how it works?

In summer it is common to use credit cards to defer some of the expenses incurred during the holidays. Using credit cards responsibly will help us avoid last minute surprises.

Spaniards spent more than 10 billion euros with credit cards in April this year, the highest figure since 2010, according to data from the Bank of Spain . The generalization of this payment tool in our country is overwhelming with 69.35 million cards in circulation, of which 64% are credit and the rest are debit. However, the debts incurred by many of its users suggest that this product is not always fully known.

 What does it consist of and how do you get a credit card?

The credit card is a means of payment that allows the customer to obtain money, which is not yet in his bank account, but which he is supposed to have when the time comes to return the amount advanced. With credit cards, you can make payments or get money, up to the credit limit set, without having to have funds in the bank account at that time. You can choose to pay everything at the end of the month without interest or return it in several installments with an interest rate on the balance drawn down.

When the credit card is used it is as if the bank made a small loan that must be repaid. So you have to use this funding responsibly to be able to meet the fees.

Before ordering this product, the client must be informed of a series of aspects that are essential to manage it correctly.

First, you must analyze your needs to choose the card that is best for you and use the credit on the card in a responsible way. The cards usually have an annual fee that is specified in the contract. It is convenient to be aware of the commissions for issuance, renewal and maintenance of the card, as well as for the withdrawal of cash and consultation of movements in ATMs.

Another point to take into account is the repayment period, being able to choose to pay everything at the end of the month without interest or return it in several installments with an interest rate on the balance provided. The interest rate varies depending on the entity and can exceed 20% APR.

Also, explore all the advantages associated with the cards. Some card modalities have insurance associated with no additional cost (for example robbery, accidents or travel assistance).

 Once the client has already been informed of all these aspects and decides to apply for a credit card, the bank will analyze his credit profile to verify that he can afford the return of the advance money. Normally, the entity reviews the client’s payment and debt history, work activity and income and, although it is not usual, it could request a certification of assets. The duration of the entire process can take up to a month.

Advantages and dangers 

The possibility of postponing the payment of an expense until the following month or when the settlement date has been established, is the main reason for requesting such a card. Many of these cards are associated with a series of insurances that can be useful in case of theft or loss, a problem in a trip due to loss or damage of luggage, cancellations, delays, etc.

However, you have to be careful with this type of product and always have the necessary funds to pay off the debt once the term ends. In the event that it is not possible to pay or the limit agreed with the bank has been exceeded, it is advisable to react before the collection of the corresponding interest and commissions begins, which are usually higher than those of personal loans.

If you do not have the necessary money to face the payment, you can negotiate with the bank to readjust the terms to guarantee the repayment of the debt. In the event that it is not possible to repay the money at once, the option would be to stipulate the payment of a smaller monthly installment to pay the debt little by little over a few months.

The ideal way to avoid this situation is to handle this type of product responsibly and prudently, controlling spending and not borrowing excessively. It is important to save consistently to have peace of mind when facing an unforeseen event.

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