Wednesday, October 22, 2014

What are credit cards and how do they work?

Lesya Babiy
Manager, Mississauga Branch

You may have heard about UCU's new Cash Crop campaign and seen the displays in branches. We thought now may be a good time to answer а few frequently asked questions about credit cards and how they work.

So what is a credit card?
A credit card is a payment card which allows the cardholder to make purchases immediately, and repay their balance at a later date.

How to choose an appropriate credit card?
You should select a credit card depending on what kind of payments you plan to make monthly: you may choose to cover the full balance or only pay the minimum amount. Some cards also offer promotions, during which you can collect bonuses and use them to buy different goods.

How many cards can you have?
It depends on such things as your working history, how long you have worked at your current job, your income, your monthly expenses, etc. This will affect the limit you will be offered. If the offered credit limit is greater than you want, you can always ask to reduce it.

What if you exceed your limit?
In this case, you must immediately pay the amount which exceeds your limit. Your financial institution has the right to take an additional charge for the excess amount and may alsocancel the card.

How do credit cards work?
As each transaction is processed, such information as date of purchase, name of the seller, the amount of the purchase, etc., is sent from the sales terminal to your financial institution. Your credit limit is reduced by the amount of your purchase and all the details are recorded on your monthly statement. It is important to review the amount and other details of each purchase before you confirm it.

You can also use a credit card to withdraw cash (cash advance), transfer the balance from one card to another, or use it to gain access to special benefits and promotions, etc.

What is a Cash Advance?
You can get a cash advance using your credit at an ATM or at a financial institution. It is important to understand that interest on cash advances begins to accrue from the date when you got the cash, not the end of the month, as in the case of any purchases you make with the card.

What kinds of promotional offers are available?
Your financial institution may offer to reduce your interest rate or apply a lower rate to your balance. If you agree to the offer, these changes can be seen on your next monthly statement. It is important to also note the terms of the contract (Terms & Conditions), which you have accepted. Be certain that the terms of the offer are beneficial to you. Sometimes financial institutions offer a very low rate, but only for 3-6 months, and then the interest will go up to 29.99%! Make sure you understand what you are signing up for.

Currently, UCU is running the Cash Crop promotion. If your application for a credit card gets approved between October 1 and November 30, 2014, you could win a $500 monthly credit or 600,000 Choice Reward Points for a year. More information about this promotion is available on our website or in any UCU branch.

Why should I review my monthly statement?
Fraud is much less of a problem with the new chip cards than in the past, but it does sometimes occur. To protect yourself you should always review your statement, and if you find charges which you did not make, contact UCU or MasterCard right away. In many cases, you are protected from fraudulent purchases and MasterCard can often help you get your money back.

Who is the primary owner of the credit card (primary cardholder)?
The main credit card holder is the person who opened the account and is responsible for the account balance. Some financial institutions allow you to add a second person who can also use the card. But in this case, only the main cardholder is responsible for the unpaid balance on the account.

What is interest?
Interest is a payment for the use of credit. It is calculated based on the daily balance (from purchases, cash advances, balance transfers from one card to another, and also contains unpaid interest from the previous month, if any). You can avoid interest by paying the full balance monthly. If you are unable to pay the full balance, the minimum payment must be paid. You can transfer the unpaid balance to your line of credit at the end of the month and pay 3%-9% instead of 20%-30%.

Ukrainian Credit Union Limited's credit cards have interest rates between 11.99% (Low Rate MasterCard for purchases, balance transfers and cash advances) to 19.99% per annum (19.49% if you have a "Gold" or "Platinum" card). These aretypical rates charged by many financial institutions. Credit cards issued by private businesses, like large department stores, mostly have interest rates in excess of 25%-30% per annum.

Lesya Babiy
Manager, Mississauga Branch
Ukrainian Credit Union
905-272-0468 x201

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