Kreditkort — How does it work, and what are its benefits?

A credit card is a thin piece of plastic that is issued to users and used for making payments.

Users of credit cards are typically referred to as cardholders. Having one enables them to pay for goods as well as services that they get from different merchants and businesses.

Often the card issuer is a bank or other financial service provider. It allows the cardholder to borrow money which they can use to pay for whatever they need now and reimburse this later. That is, it helps you as the holder to make payments conveniently and meet your everyday expenses.

The cardholder must pay back the money they borrowed plus the applicable interest and other associated fees and charges. This is often required to be paid in full by the agreed billing date or over a period.

In addition to this, the issuer may grant a separate line of credit to holders. This enables them to borrow money in the form of cash and this can be accessed via ATMs, bank tellers, etc. However, such advances usually have different conditions attached, such as higher interest and no grace period.

Credit Card

By understanding how a credit card works, you will gain insights into the benefits of having one. You can check out this kredittkort info to learn more. It will also give you insight into how you can responsibly manage your debts.

A wide variety of merchants and businesses across the world allow consumers to make purchases with their credit cards. It remains one of the most popular methods of buying and paying for goods and services for a lot of people. One of its advantages over debit cards is that it offers better protection against fraud.

How do credit cards work?

Credit cards as said earlier enables the holder to pay for goods and services but this is based on the cardholder’s accrued debt. This is a promise to the card issuer that they will pay the amount spent plus any accrued charges or interests.

Typically, the card issuer will create a revolving account and then grant a credit line to the cardholder. From this, the holder can borrow money they need to spend as a cash advance. Usually, the issuer pays the merchant and the cardholder reimburses the issuer.

When compared to other types of consumer loans, they typically have higher Annual Percentage Rates (APRs). The interest charges on the unpaid balance are imposed roughly around a month after the user makes a purchase.

In most countries, issuers usually give a grace period before the interests on purchases begin to accrue. This is why it is a good practice to pay up the balances before the expiration of the grace period. Another important thing to know is if your card accrues interest on a daily basis or monthly.

If it is daily, this translates to higher interest charges until the balances are paid. It is important to keep this in mind if you will be transferring your balance to a lower interest rate card. That is, be certain that the interest accrues monthly and not daily. If it is daily, the interest charges can void any savings you think you have made.

Benefits of owning a credit card.

The two most common types of payment cards are debit and credit cards. However, credit cards hold some advantages over debit cards. These include:

Building a credit history.

When you use a credit card, this reflects on your credit report. This report shows data about your financial conduct. This includes your financial history such as paying debts on time, late payments, delinquencies and so on. This is used for calculating your credit score.

Your financial health is a very important metric for scoring you. Having a credit card is one of the best ways to prove this. It helps you to have a credit rating. You need this history or rating before you can apply for loans. When you do not have a card or have not taken a loan, this does not exist.

You need to work proactively to build a good history. Getting a credit card is one of the surest ways of achieving this. Whenever you need to apply for a loan or any other financial product, the lender will check your score. This is to gauge your risk profile.

A high score indicates positive data and this makes it easy for lenders to approve your loan application. A low score means negative data and you may find it difficult to get loans approved. This is why it is important to keep a positive rating. When you rack up huge debts and you do not pay on time, it hurts your ratings.

Greater purchase and warranty protection.

Credit cards may offer protection in form of insurance and warranties on purchases especially those that are beyond what a retailer offers. For instance, if an item becomes defective after the warranty has expired, the card issuer may be able to provide coverage. Legislation provides that the creditor and seller are both responsible for ensuring that the buyer gets the product or service they paid for.

Alternatively, you may have price and purchase protection built into the card. This helps to reimburse price differences in case the item is found elsewhere at a lesser price. In some other situations, it helps to replace lost or stolen items.

Greater overview of cardholder’s finances.

Another benefit of having a credit card is that when you purchase something, the money is not deducted directly from your account. Until you pay the bill, it is the issuer that bears the liability.

If there have been any discrepancies, they will not be charged to your account. Rather, you have the opportunity to go through all the transactions before you take on the expenses.

Interest-free credit.

When you get a credit card, you are most times entitled to an interest-free period. In as much as you pay your outstanding balance timely, you will avoid paying the interest rates during this period. You also pay for goods and services interest-free which mean that you have gotten a loan for free.

The average interest-free period for most issuers is 45 days. Some may however give a higher number of days. Typically, the number of days you get will depend on the issuer’s due date.

Other benefits.

Asides from the above benefits, by using credit cards, you can get different discounts and waivers. This includes flight bonuses, cashbacks, free travel as well as cancellation insurance.

It also comes in handy as a form of security for times when you get unexpected bills without a means to pay. Furthermore, when you get an unauthorized charge or purchase on your card, you can dispute this.

Cons of owning a credit card.

As much as there are many benefits to owning a credit card, there are also disadvantages. One obvious one is the interest rates. This is a short-term loan that you have to pay back with interest. Depending on your issuer, this interest can be as high as 30%. You may also be charged an annual fee and other charges.

The way to go around this is to look for an issuer with a low-interest rate and no annual fees. This helps to make it easier to pay up whatever you have spent with interest.

Additionally, when you use your card, you are not spending your money but that of the bank. This makes it easier to develop a habit of buying what you do not need and getting into debt. When you rack up various debts on different cards, it can become difficult keeping up with your monthly payments.

To avoid this, you have to be a disciplined spender. Also, as much as possible, pay the minimum amount required as at when due every month at least. You can find things that you need to put into consideration before you get a credit card here.


A credit card offers a convenient and easy way to make purchases and pay for goods and services from different businesses. There are several benefits to owning one but at the same time, it takes discipline and credibility on the cardholder’s part.

You must work towards paying back whatever you spend, including the accrued interest. This will help to boost your credibility and ratings.