Everything about credit cards

What are the differences between a credit card and a debit card?

A credit card is a tool which can be used to “buy now and pay later” while a debit card is for “buying now and paying now”.

A debit card is linked to your checking account and the funds there available. Contrarily, a credit card is a non-guaranteed loan which a financial institution offers the client with easy payment conditions.

By using a credit card, the user will have to pay interest – this depends on whether the client decides pay off the entirety of the “loan” or just a part of it.

Advantages of using a credit card:

• The option of buying goods on the spot.
• Not having to carry around cash.
• Receiving paper evidence of your purchases.
• It is much more convenient and less costly than writing cheques.
• Permits you to lump together the payment of all your shopping in one single transaction.

Disadvantages of using a credit card:

• The goods may end up costing you more (credit costs: interest rates and financing fees).
• In the event that you lose control of your credit card usage, it may result in a significant increase in your expenses and cause eventual financial difficulties.

• You may be more easily tempted and fall prey to compulsive shopping.

Types of credit cards

There are two types of credit cards – cards issued by a financial institution and store credit cards.

Stores have agreements with credit institutions so that they can offer their clients these types of credit cards to purchase the store’s goods.

These cards permit clients’ access to customer discounts and other exclusive advantages not available to other clients – promotions, bonuses, discounts.

Costs associated with the use of credit cards – interest

When using your credit card (except when using it during the free credit period), you will be charged interest. Some good advice is that you should carefully read the contents of the contract and know what the interest rate is as well as how to calculate the interest rate, before you sign the contract. The objective is using your card and knowing exactly how much and when you need to pay. Always account for the interest charges when you pay by credit, so that you are aware of exactly how much you will actually end up paying. Another important thing to consider are the penalties which are applied in the event of payment defaulting.

How does one use a credit card wisely?

There is a grace period when the client can use their credit card without having to pay interest. To take advantage of this free credit period, the user must pay for the goods and services in one transaction within a given period of time after the purchase – normally one month afterwards. We advise that during the signing of the contract, you take note of the functionality of this grace period given that the timeframes vary amongst banking institutions.We also advise that in the event that you do not make use of the free credit period, you should try to make the highest payments possible so as to pay the least amount of interest.

Credit Card Protection

There are credit risk protection insurances available in the market which cover death, temporary or permanent disability, temporary disability (work leave), unemployment, fraudulent use (in case of theft) and consumer shopping protection (guarantee of replacement within a period of X days after the date of purchase if the merchandise is damaged).

These insurance policies permit that in the event to death or disability, the creditor assumes the total amount still owed and in the event of unemployment or temporary disability, the creditor will make the monthly payments for a certain period of time (for example, 18 months).

Therefore, we suggest that you find out whether or not your credit card has any sort of insurance policy associated with it, and if it does not, consider applying for one.

Protection associated with credit cards

Familiarise yourself with the insurance policies associated with your credit card. The majority of credit cards issued by credit institutions have accident and sickness insurance, travel accident insurance, a host of luggage insurance for loss, theft or deterioration of baggage, and civil responsibility insurance policies which are applicable both in Portugal and abroad.

Know the terms and conditions of the contract when it comes to card theft, as well as the rules for protection. Always carry around the contact number of the institution which issued your credit card so that you can contact them immediately if your card has been stolen.