Credit Cards, Revolving Credit and Transactions in a Nutshell
What are credit cards? Well if we were to grossly over-simplify it, they’re cards that allow you to take virtually unlimited numbers of loans from your provider (such as a bank or building society) provided you pay the money back by the deadline given to you. If you don’t pay back by then the provider charges a penalty fee which you also have to pay.
When you get a credit card it comes with a credit limit, that limit basically dictates how much of the credit you can spend before you must pay it back, plus there is also interest on the credit used by the consumer unless you pay back before the 56-day limit passes, before that limit the credit borrowed is interest free! In other words as long as you pay back your credit at the end of the month you won’t have to pay interest.
Credit cards are mostly used to make transactions, either online or in person. You can draw money from an ATM using a credit card but I would highly advise against it, since there’s usually a fee for cash withdrawals and comes with a higher rate of interest and no interest-free period.
Transactions are easier and quicker than carrying cash anyways, not to mention if your card is stolen you can simply report it to the bank or cancel the card. Furthermore, credit cards offer protection on purchases between PKR 30,000 and 100,000, so in case you lose money (in that range) due to unforeseeable circumstances you should be able to claim it back from your provider.
Revolving credit is a sort of credit that can be used repeatedly up to a certain limit if the account is open, and payments are made on time. With revolving credit, the amount of available credit, the balance, and the minimum payment goes up and down depending on the purchases and payments made to the account.
Banks like Standard Chartered Pakistan give you a lot of freedom and flexibility, guaranteeing that you always have cash accessible for emergency needs. You can always opt for this to make your life a whole lot simpler. According to SCB, the services include:
Payments are made based on the amount that’s been borrowed, plus an interest charge based on the balance.
The major players when it comes to credit card companies are Visa and Master Card, Visa taking the lead by a landslide with 323 million card holders worldwide and accepted by over 8 million merchants. Almost every shop you go through will have a sign, either on the door or counter, saying “We accept Visa” and trust me, they aren’t asking for your travel documents.
So the question you may be asking now is, so should I get a credit card? There is no simple answer, if you can pay off your used credit at the end of the month and don’t splurge using the credit limit given to you all should be fine, but beware. Even though about 40% of card holders pay their full balance every month a significant number of people have been caught in the revolving credit trap. According to KarloCompare, over 8% of holders carry balances over PKR 50,000 and one in six families pay only the minimum amount due every month. So in a time where most things are digitized, a credit card may be a smart choice but even the best plans can back fire.