Credit card – what is it? How does a credit card work?

A credit card is a very convenient product attached to a personal account – regular repayments will allow you to avoid charging interest, and the deadline for settling the used credit limit exceeds a month. How do I use a credit card to take advantage of the free credit?

A credit card is nothing more than a credit limit in the form of a payment card, known to every bank customer. The form does not differ from any card that is received to handle funds accumulated on an ordinary bank account. Often it is not so easy to distinguish it from an ordinary debit card at first glance.

However, when making purchases, the credit card takes funds not from the personal account, but from the credit account. This is connected with additional possibilities, but also with certain obligations that cannot be forgotten. Otherwise, the plastic that was supposed to give us access to free additional funds may turn out to be quite a heavy burden on the household budget. At the same time, however, wisely managed credit cards are a great way to raise money without unnecessary formalities and burdens.

(photo: onephoto / YAY Foto)

How does a credit card work?

The principle of a credit card is very simple. The bank will not start charging interest on the debt accrued on the card account until the user does not use it or the credit card maturity date is not exceeded . Due to the very similar appearance and purpose, it is very often confused with a debit card , i.e. the basic payment card that is in our wallets. However, the difference in their number on our market is quite significant.

According to the analyzes, we currently use approximately 5.7 million credit cards in Poland. A year earlier, there were several hundred thousand more. Therefore, a downward trend in favor of mobile payments is noticeable. Nevertheless, the market position of the credit card is still significant.

There are over 28 million debit cards. The disproportion results primarily from a different mechanism of action, which also forces a different method of inferring and awarding plastic. Credit cards are credit products , so the decisive factor will be, among others . specific customer ‘s creditworthiness .

Citibank Simplicity credit card

One of the most popular credit cards in Poland for years is the Citibank Citi Simplicity card . It is a very useful payment tool. Having this card, we can always use it in case of unplanned expenses. The Citi Simplicity card will also prove useful when planning a trip, because thanks to it we can book a hotel, buy air tickets and rent a car.

Using a loan does not have to be expensive. It is enough for us to use the interest-free period, which in the case of this card is 56 days . By repaying the card within this period, we will not incur any additional costs related to the debt. We pay back as much as we spent.

The monthly cost of maintaining a Citibank Simplicity credit card is PLN 12 . You can easily avoid this fee by making transactions with a value of min. 1000 PLN a month . However, if we issue a credit card in the promotion and meet the conditions of activity to get a bonus, you will avoid the fee for the first year if you make monthly transactions worth only PLN 300 , not PLN 1000.

If we get a Citibank Simplicity credit card in the ongoing promotion, we can easily get up to  PLN 400 bonus to spend in the Biedronka chain of stores . All you need to do is get a Citibank Simplicity card and:

• by the end of the following month at the latest, after signing the agreement,  log in to Citi Mobile banking;
• By the end of the third month at the latest , starting from the month following the month of concluding the contract,  spend at least PLN 1000 when paying with the Simplicity card for purchases in stationary or online stores.

Step by step use

Undoubtedly, any person who has used any type of card payment: debit or prepaid , will be able to pay with a credit card . With its help, we can easily pay in a stationary store using cashless transactions with or without a PIN code within the accepted limit. We will also be able to pay for online purchases .

However, the obligations of the holder do not end there. While in the case of plastic “attached” to the bank account, the sum will be charged from the account, credit cards use the granted limit, which is in no way linked to our savings. So this will have to be repaid, and the final cost of the loan also depends on how we do it.

Interest-free period: a way to get free funds

A specific concept related to the operation of a credit card is the interest-free period – this is the time during which the card issuer will not charge interest on the used debt limit. The interest-free period is usually 40-60 days.

It consists of two parts:

1. The settlement period : this is the time during which we can use the granted limit. It lasts for a month and its end is marked in the contract.
2. Debt repayment period : after the end of the settlement period, the bank summarizes the funds used and gives us time to settle them. This one will depend on the bank’s policy, but usually it is 20-30 days.

This means that when paying with a card for purchases on the first day of the settlement period, we have 30 days plus 20-30 days to repay this amount, which was set by the bank in the offer. During this time, the bank will not start charging interest on the amount spent . This means that we can pay off the debt on the card only at the end of the next month, and until then we can still use the free loan .

Credit card repayment

Before the end of the interest-free period , however, the credit card must be repaid so that the bank does not start charging interest. In this way, the use of the card will only involve the customer incurring a fee for using the card .

Banks allow you to avoid it less often than in the case of debit cards issued to a personal account, but there are also those on the market that are exempt from the fee or its significant reduction. It is enough to ensure adequate receipts in the bank account or use it actively when shopping.

Paying off your credit card is a very simple process. The bank that issues the card gives the credit card number , or rather the account number that is used to repay the debt . The only thing the customer has to do is make a transfer of funds from the checking and savings account to the credit card account in due time .

However, be careful if you make repayments on the last day of the interest-free period . The same rule applies here as in the case of an ordinary transfer – it may not be delivered on the same day and, as a result, the bank will charge interest for each day of delay.

Repayment does not always mean the same

People with a credit card must know, however, that the possibilities that plastic hides do not end there. They do not have to pay the entire amount borrowed. Banks set a minimum amount, usually 5% of the debt on the card. The remaining amount can be divided into installments and repaid at a later date.

However, it is worth remembering that in this case you will have to take into account the interest rate. In most offers, this is equal to the maximum allowable rate, i.e. four times the lombard rate. Credit cards are therefore the most profitable when we manage to pay off the credit card in the so-called “grace period”.

Credit card transfer and cash withdrawal by credit card

The credit card is primarily used for payments made in stationary or online stores. It is also possible to use it at an ATM or make a transfer . However, banks will charge a substantial fee for such non-standard operations.

While the basic use of the card is not expensive, any operations involving the conversion of the credit limit on the card account into cash involve additional fees. Withdrawing cash may involve a commission of up to 10%. For each thousand zlotys withdrawn, the bank may charge a fee of 100 zlotys.

It is similar with transfers from a credit card account – it is possible, but just as expensive. Credit card issuers also often offer to convert your available credit limit into a cash loan . However, it should be remembered that then interest is charged from the moment of signing such a contract, and not, as in the case of repayment of a credit card , only after the end of the interest-free period.

The commission is not everything

However, a high commission for withdrawing cash from an ATM using a credit card or making a transfer from its account is not everything. Most banks also reserve that only non-cash transactions are not subject to interest.

Often, therefore , the funds we have obtained in this way will cost much more , regardless of whether we managed to accommodate the repayment of the entire debt in the interest-free period or not. In order not to lose valuable savings, it is worth carefully reviewing the terms of the contract.

What will you find on the front and back of your credit card?

According to ISO standards, on the front, i.e. the face of the credit card, there must be:

• Name and logotype of the bank issuing the card
• Card number, which we will write about in a moment
• Microprocessor
• Credit card expiration date
• The name of the credit card owner
• Logotype of the organization responsible for the card

On the back of the credit card you will find:

• Magnetic strip
• Place for signature
• CVV2 / CVC2 number
• Hologram

What’s in the credit card number?

The credit card number consists of 16 digits in blocks of four.

• The first digit informs us about the industry in which the issuer of our card operates.
  • 1 and 2 – airlines
  • 3 – Travel & Expense club cards
  • 4 – VISA
  • 5 – MasterCard
  • 6 – national financial card organizations
  • 7 – fuel sales networks
  • 8 – telecommunications networks
• The next five digits are allocated to the card issuer . Together with the first digit, they make up the BIN (Bank Identification Number) that allows you to identify the bank.
• The next 9 digits are the customer’s account identifier .
• The last digit serves as a control and allows to determine the authenticity of the card on the basis of a mathematical algorithm.

Additional options

The possibilities offered by credit cards do not end with the acquisition of additional cash. Issuing a card is also a pass to numerous benefits. Thanks to them, we will take advantage of special bank promotions offering access to exclusive promotions, discounts and a refund of some of the funds spent, i.e. cashbacks .

Such programs have been prepared by both card issuing companies and almost all banks.

Besides, the card is uneven. Special editions allow you to use additional options such as

• Travel insurance or support in case of trouble.
• Access to VIP zones or special actions organized in various places around the world. It is also worth knowing that what plastic rests in our wallet will also depend on, among others . how much we will pay for the borrowed funds.
• Higher credit limit for prestigious cards after prior analysis of the customer ‘s creditworthiness . The credit limit will depend on its verification, i.e. the funds that the user will be able to use.
• Extra Opportunities : Some cardholders gain access to much better deals, including promotions such as moneyback . They receive special offers and benefit packages.