Credit cards are essentially lines of revolving credit that bank issuers offer to their customers. Like any other form of loan, the card has a limit and requires payments at regular intervals.
As a small business owner, you likely receive credit card offers on a regular basis. But do you know what they mean?
What Is a Credit Card?
A credit card is a plastic or metal card that allows people to make purchases on credit. The cardholder agrees to pay back the money borrowed plus interest and fees over time. Using a credit card wisely is one of the most efficient ways to build a strong credit history, which can be beneficial when applying for loans or other types of credit in the future.
When someone applies for a credit card, the credit card issuer usually orders a hard inquiry into their credit report to verify the information on the application. This can have a slight impact on their credit score, but the impact diminishes over time as they continue to use the card responsibly.
Some credit cards require that a security deposit be kept on file to protect against losses due to fraudulent activity. Others charge an annual fee, which is often waived for the first year of use. Many cards also offer perks such as cash back or rewards.
What Are the Benefits of Having a Credit Card?
Credit cards offer a number of benefits including interest-free financing, $0 fraud liability and credit building opportunities. They also often come with secondary benefits such as price protection and rental car insurance.
Credit card issuers earn revenue from the interest they charge on balances that consumers carry past their statement due dates. The interest expense is a result of the banks borrowing money at low rates and lending it to their customers at higher ones.
If you have a strong credit score, you can usually get pre-approved for certain cards before even filling out an application. This typically requires submitting your name, address and Social Security number as well as some other information. It also triggers a soft credit pull, which doesn’t affect your credit score.
Other perks credit cards offer include concierge service that can help you make restaurant or travel reservations and secure hard-to-get sports or theater tickets. Credit cards can also make it easier to keep track of your spending with monthly statements that detail exactly where and when you spent.
What Are the Requirements for Having a Credit Card?
Many credit card companies have minimum credit scores that applicants must meet to be approved. Generally, the better your score is, the better your chances of approval and the lower your rate will be. However, there are credit cards available for people who don’t have high scores, and many credit card issuers allow you to check your application status online so you can know the status before it is reported on your credit report.
Typically, you’ll need to provide your name, address, and Social Security number when applying for a credit card. In addition, you may be asked to provide income and assets to help the card issuer make sure that you can afford the credit limit they approve for you. It’s best to apply for only one credit card at a time, as multiple hard inquiries can hurt your score. And make sure to pay your credit card balance in full and on time each month, to avoid interest charges and fees.
How Do I Apply for a Credit Card?
Credit card issuers use the information in your application to evaluate whether you should be approved or denied. To do this, they typically pull your credit report.
You can apply for a credit card online, over the phone or in person. Online applications offer the fastest response because they go directly to the card issuer.
A credit card application is usually a simple form that asks for basic information like your name, address and Social Security number. It may also request additional information like your income and bank account info.
To increase your chances of approval, it’s a good idea to compare cards and choose one with the best terms. This includes checking a credit card’s annual percentage rate and fees, as well as its credit score requirement. You can find these details on a credit card’s official website, or by using a tool like Credit Karma. Getting pre-approved for a credit card can also help you decide if it’s a good fit for your spending habits.