HomeKnowledge BaseCCredit Card: What It Is, How It Works, and How to Get One?

Credit Card: What It Is, How It Works, and How to Get One?

We will thoroughly explain the concept of credit cards in this article, giving you a full grasp of what they are, how they operate, and how to obtain one. We have you covered whether you're unfamiliar with credit cards or want to increase your financial literacy.

What Does a Credit Card Mean?

A credit card is a financial tool that lets you borrow money from a financial institution, commonly a bank, to make purchases or pay for services. It works on the principle of credit, granting you a predetermined line of credit that you can utilise within certain limits.

Unlike debit cards which are linked directly to your bank account, credit cards provide you with a temporary loan to be repaid later. Making a purchase with a credit card, you borrow money from the card issuer and promise to repay it.

When you utilise a credit card for a transaction, the card info is transmitted to the payment processor of the merchant. The processor verifies the info and requests authorisation from the card issuer. The transaction is complete after it has been authorised, and the cardholder is now liable for paying back the total amount charged.

What are the Features of a Credit Card? 

Here are the features of a credit card:

Credit Limit: A credit card comes with a predetermined credit limit, i.e. the maximum amount you can spend on the card.

Interest Rates: Credit cards typically have interest rates attached to them. Interest will be added to any outstanding balance if you carry a balance on your credit card beyond the interest-free period.

What are the Advantages of a Credit Card? 

Here are the advantages of a credit card:

Convenience: Credit cards propose a convenient payment method, allowing you to make purchases without carrying cash.

Building Credit History: Properly managing a credit card can aid in establishing and building a good credit history, which is beneficial for future loan applications, such as car loans or mortgages.

Emergency Funds: Credit cards can serve as a financial safety net during emergencies when immediate cash is required.

Rewards and Benefits: Many credit cards propose rewards programs, allowing you to earn points, cashback, or other benefits on your spending.

Purchase Protection: Credit cards often provide security from fraudulent transactions or faulty purchases, offering dispute resolution and potential refunds.

Global Acceptance: Credit cards are widely accepted both in South Africa and internationally, making them a convenient payment option when travelling or making purchases from foreign merchants.

Online Shopping: Credit cards enable secure online transactions and offer additional security measures, such as verification codes and fraud monitoring systems.

Record Keeping: Credit card statements provide detailed records of your transactions, making it easier to track expenses, budget, and manage personal finances.

Access to Exclusive Offers: Some credit cards provide access to exclusive discounts, promotions, or events with partner merchants, enhancing your purchasing power.

What are the Disadvantages of a Credit Card?

Here are the disadvantages of a credit card:

Interest Charges: Carrying a balance on a credit card beyond the interest-free period can lead to high-interest charges, increasing the overall cost of purchases.

Debt Accumulation: If not managed responsibly, credit cards can bring debt accumulation, as the availability of credit may tempt individuals to overspend beyond their means.

Annual Fees: Some credit cards can have annual fees associated with them, which can add to the cost of owning and utilising a credit card.

Potential for Fraud and Identity Theft: Credit card users must be diligent in securing their card details and checking their bills for unauthorised activities because utilising credit cards carries a fraud risk and identity theft.

Negative Impact on Credit Score: An individual's credit score can suffer from negligent credit card usage, such as skipping payments or going over the credit limit.

Limited Acceptance: While credit cards are widely accepted, there may still be instances where merchants or establishments only accept cash or specific payment methods, limiting the usability of credit cards.

Potential for Penalty Fees: Late payments or exceeding the credit limit can result in penalty fees, increasing the cost of utilising a credit card.

What are the Types of Credit Cards?

These are the different credit card types:

Rewards Credit Cards: Customers utilising rewards credit cards can accrue miles, points, or cashback on their transactions. These awards can be exchanged for a variety of advantages, including merchandise discounts, statement credits, and travel reductions. It's crucial to pick a rewards program that suits your tastes and spending style.

Travel Credit Cards: A travel credit card can be your greatest friend if you travel frequently. These cards often offer travel-related perks such as airport lounge access, travel insurance, and exclusive discounts on flights and hotels. Some even waive foreign transaction fees, making them ideal for international trips.

Student Credit Cards: Designed for students who are new to credit, student credit cards offer a starting point for building a credit history. They often come with lower credit limits and fewer rewards but provide an opportunity to learn responsible credit card usage and establish good financial habits.

Secured Credit Cards: Secured credit cards are suitable for individuals with limited or poor credit history. They require a security deposit as collateral, which becomes the credit limit. By using a secured card responsibly, you can improve your creditworthiness and eventually qualify for an unsecured credit card.

Business Credit Cards: Business credit cards cater to the financial needs of small business owners. They offer expense management tools, rewards tailored for business spending, and employee cards with customisable spending limits. These cards help separate personal and business finances while providing benefits specific to business needs.

What Is the Cost of Having a Credit Card?

Here is what the cost of a credit card consists of:

Annual Fees: Some credit cards have annual fees associated with their usage. These fees contribute to the card's overall costs and may vary depending on the card's features and benefits. However, many credit cards also come without annual fees, making them more accessible to a wider range of individuals.

Interest Rates: When you carry a balance on your credit card by not paying the full statement amount, interest charges apply. These charges are calculated based on the annual percentage rate (APR) of the card. It's essential to understand the interest rates associated with a credit card and manage your balances accordingly to avoid unnecessary debt.

Late Payment Fees: Late payment fees are incurred when you fail to make the minimum payment by the due date. It's crucial to pay your credit card bill on time to avoid these fees and potential negative impacts on your credit score. Setting up automatic payments or using payment reminders can help you stay on track.

Foreign Transaction Fees: When using your credit card abroad or making purchases in foreign currencies, some cards impose foreign transaction fees. These fees typically range from 1% to 3% of the transaction amount. If you frequently travel internationally or make foreign currency transactions, consider choosing a card with no or low foreign transaction fees.

How to Get a Credit Card?

Here are the steps to get a credit card:

Researching Credit Card Options: Before applying for a credit card, it's crucial to research and compare different options. Consider factors such as interest rates, annual fees, rewards programs, and additional benefits. Look for cards that align with your financial goals, spending patterns, and credit history.

Checking Eligibility and Requirements: Each credit card has specific eligibility criteria and requirements that need to be met for approval. These may include minimum income requirements, credit score thresholds, and age restrictions. Ensure that you meet the necessary criteria before applying to increase your chances of approval.

Submitting a Credit Card Application: Once you have chosen a credit card, you can submit an application either online or through a physical application form. Provide accurate information, including personal details, employment information, and financial data. It's essential to review the application carefully before submission to avoid any errors.

What are the Tips for Efficient Usage of a Credit Card?

Here are the tips for efficient usage of a credit card:

Understand How Credit Cards Work: Familiarise yourself with the workings of credit cards, including credit limits, interest rates, and repayment terms.

Spend within Your Means: Only use your credit card for purchases you can afford to repay. Avoid overspending and stay mindful of your budget.

Pay On Time: Make timely payments to avoid late fees and penalties. Set reminders or automate payments to ensure you pay the full outstanding balance or at least the minimum amount due by the due date.

Monitor Your Credit Card Statements: Regularly review your credit card statements to track your expenses, detect any errors or unauthorised transactions, and stay aware of your outstanding balance.

Keep Track of Interest Rates: Be aware of the interest rates associated with your credit card and understand how they impact your balance. Avoid carrying over outstanding balances from month to month to minimise interest charges.

Utilise Interest-Free Periods: Take advantage of interest-free periods offered by credit cards. If you pay the closing balance in full by the payment due date, you can enjoy a certain number of interest-free days on your purchases.

Minimise Debt Utilisation Ratio: Aim to keep your credit utilisation ratio, which measures the amount of credit you're using compared to your credit limit, below 30%. This can positively impact your credit score.

Protect Your Card and Information: Safeguard your credit card and personal information to prevent fraud or unauthorised use. Keep your PIN secure, select cash machines with care, and exercise caution when making online transactions.

Build Your Credit Score: Responsible credit card usage can help improve your credit score over time. Paying your bills on time, keeping your credit utilisation low, and establishing a positive payment history contribute to a healthy credit profile.

Bottom Line and Key Takeaways

Credit cards are versatile financial tools that provide convenience, security, and the opportunity to build a positive credit history. Understanding the different types of credit cards, associated costs, and how to obtain one is crucial for making informed financial decisions. By using credit cards responsibly and managing your credit well, you can enjoy the benefits they offer while safeguarding your financial future.


1. Can I get a credit card with no credit history?

Yes, you can get a credit card with no credit history. Secured credit cards and student credit cards are designed for individuals with limited or no credit history.

2. How long does it take to get approved for a credit card?

The approval process for a credit card can vary depending on the issuer. Some may provide instant approvals, while others may take a few days or weeks. It's advisable to check with the issuer or refer to their website for specific timelines.

3. Are there any drawbacks to using credit cards?

While credit cards offer several benefits, it's important to use them responsibly. Failure to make timely payments can lead to high-interest charges, late payment fees, and potential damage to your credit score. It's crucial to manage your credit card balances and avoid overspending.

4. What is a credit score, and how does it affect credit card applications?

A credit score is a numerical representation of your creditworthiness. Lenders use it to assess the risk of lending to you. A higher credit score increases your chances of credit card approval and favourable terms, while a lower score may result in higher interest rates or rejection.

5. Can I improve my credit score quickly?

Improving your credit score takes time and consistent responsible credit behaviour. Paying bills on time, keeping credit utilisation low, and maintaining a healthy credit mix can gradually improve your credit score over time. Beware of credit repair scams promising instant results; genuine improvement requires patience and diligence.

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