The following is a detailed explanation of how to use a credit card to your advantage so that you don't make a "mistake" again, so don't get distracted and pay close attention. Nowadays there are several cards in circulation. The most common are debit, credit, and commercial credit cards. Let's see what each of them consists of.
Let's review the concepts
The debit card is a financial instrument used to make payments and cash withdrawals. It is used by most companies to pay payroll. You deposit your own money. It is not a credit card. With it you can make your purchases in commercial establishments, without extra costs; you can spend only what you have; withdraw money at ATMs and some supermarkets.
The credit card is a financial instrument that serves as a means of payment and to obtain credit. The bank, as an issuer of the card, grants a customer, through a contract, a revolving line of credit (as soon as the debt is paid off, you get that money back for use) up to a certain amount known as the credit limit.
Commercial credit cards are those offered by supermarkets and department stores. With this type of credit card, as with bank credit cards, you pay a certain interest rate for the amount financed, and if you fail to make the minimum payment required, you will pay default interest, among others. This card is only good for purchases at the store that issued it.
On this occasion, the only thing you are going to hear about is credit cards.
Don't make a big deal out of it
According to the National Commission for the Protection and Defense of Financial Services Users (Condusef), when you are offered a credit card you should understand the following concepts:
Period. This is the start and end date of the cycle in which you can use your card. It ranges between 30 and 31 days.
Cut-off date. It is the day of the month in which a new period of registration of what you spend on the card ends and begins.
Payment deadline. This is the date you have to make the payment and not fall into arrears, generally 20 calendar days from the cut-off date.
Minimum payment. This is the minimum amount to be paid to the bank in order not to fall into arrears.
Payment so as not to generate interest. This is a minimum amount that you must pay on time to avoid paying interest (includes monthly payments corresponding to interest-free month promotions).
The interest rate expresses the payment received by the company that deposits the money for making that amount available to you. In the case of a loan, the interest rate is the amount you will have to pay the lender for using the money. In case of default or late payment, you will have to pay late interest. In other words, you will be charged a surcharge for the late payment of the loan installment plus normal interest.
Before you sign up
There are several types of credit cards offered by different banks. Before committing to any of them, it is important that you know the requirements they ask for, such as your monthly income, the annuity commission, interest rates, the total annual percentage rate (CAT), and support in case of theft or loss, among other items.
The CAT allows you to know the total cost of a loan. That is to say, it includes all the costs and expenses inherent to the financing, such as the interest rate, the different commissions, and the insurance premiums that the user is obliged to contract, among other concepts. With the CAT value, it is possible to correctly compare the financial cost of credit cards.
On the other hand, the interest rate charged by a bank for the use of a given plastic card is different for each client, since it depends on several factors, such as the amount of the credit, the user's credit history, or the timely payment. Each card has its own characteristics. Not all of them offer you the same thing.
Compare the advantages offered by each one and choose the one that best suits your needs and payment capabilities. Before signing, read your contract carefully and make sure you only have the cards you need. If you have any doubts, clarify them with the person who offered you the "plastic".
Get the most out of it
Now that you have your credit card, don't make the mistake of thinking you have extra money or believing that your spending power is much greater, when in fact it is not. Using your card correctly means taking advantage of its benefits, without spending more than you earn. In other words, you must be able to pay your balance in full.
A credit card allows you to get out of emergencies such as the hospitalization of a family member, repair your car, make hotel reservations, rent a car, buy tickets to attend an entertainment center, etc. It also allows you to shop online. No need to carry cash. In addition, you can use it when you travel abroad since it is an accepted means of payment in many countries around the world.
And if I don't pay on time...
What happens if for some reason I get into a bad financial streak that lasts several months and I can't pay the credit card on time? You will probably get constant phone calls telling you to make immediate payments on your debt. They may also warn you that they are going to "report you to the Credit Bureau".
If you have or had a credit card, car loan, mortgage loan, have contracted a telephone or pay-TV service, have a tax credit from the Tax Administration Service (SAT), etc., surely the Credit Bureau has a record of your history. If you wish to know the information that the Credit Bureau has on you, please visit their site, to request a Special Credit Report, which reflects the commitments paid on time and those with delays in your compliance.
This Special Credit Report can be consulted free of charge once every twelve months. If you have a bad credit history, your profile in the Credit Bureau will be negative, which may cause you not to be approved for a departmental credit card, financing for a house, a car, etc. By law, this report will remain in the Bureau for up to 72 months (six years), so it is best that you are always up to date with your payments.
If you have any doubts about printouts, omissions, or errors in your Special Credit Report, ask for support at the Credit Bureau. As you can see, credit management is one of the most important tools of personal finance and has many advantages if you use credit responsibly. But, if you don't pay on time, you can appear in the credit bureau.
Take into account the following recommendations
Before signing the contract, know precisely the current fees related to the use of credit cards. The bank is obliged to inform you.
Buy only when you can cover the monthly payments, always paying more than the minimum.
Pay what you bought before the end of the month to avoid paying interest.
Keep a record of the purchases you make during the month. These should coincide with those that appear on your account statement. Any anomaly, report it to the bank since by law you have up to 90 business days from the cut-off date to present any clarification.
Have the telephone number of the institution that offers you the service at hand, so you can immediately report the theft, loss of your card, or any other anomaly.