What Is Credit?
Credit is an agreement between a lending organisation (like a bank or credit card company) and you, the borrower. That agreement puts money in your bank or on your credit card for your use. The terms of repayment, including interest charges, are usually established up front and are governed by an agreement between you and your issuing bank.
THE DIFFERENCE BETWEEN CREDIT AND DEBIT CARDS
CREDIT CARD
You can make purchases up to your credit limit. When the bill comes, you must pay at least the minimum balance. Banks charge interest on unpaid balances. Generally, if you pay the entire bill at the end of the month, you will not have to pay interest charges. If you maintain an outstanding balance, you will be charged interest at a predetermined Annual Percentage Rate (APR), which differs from issuer to issuer.
DEBIT CARD
Funds are automatically taken from your bank/ financial institution account to cover charges incurred on your card. You can spend the total amount that is in your account.
ESTABLISHING CREDIT
First, apply for a credit card that meets your needs and spending habits. Every time you pay off your purchases by the due date, you continue to build a good credit history.
MAINTAINING GOOD CREDIT
The most important thing to do is pay your credit card bill regularly. Pay the entire bill, or as much as you can afford (at least the minimum payment), each month.
If your bill is delivered late or if you won't be able to pay it on time, contact your card-issuing company to make payment arrangements. If you fail to make a payment on time, you could incur a penalty and this may affect your credit rating.
If you know you'll be carrying a balance each month, consider a credit card with a low interest rate. And be sure to learn the impact of compounding interest - the amount you're charged in interest on top of unpaid purchase and interest charges from previous months. Credit cards are a flexible way to manage your finances but you should always budget to spend within your means over the longer term.