Credit Check : How it works

Talking about credit checks causes chills in many people. Inappropriate use and the lack of effective financial control make the credit check a great villain in the pocket in addition, he is considered by many to be responsible for almost unpayable debts. But, it is worth mentioning that the good use of the card becomes beneficial. To get more information check my site

This is because most people who use a credit check end up confusing the limit given by the card management company (issuer) with an extra amount of money to be spent on purchases that, often, have no need. Thus, this fact, coupled with the lack of knowledge about the high fees charged in case of delay or failure to pay the invoice, explains why the credit card has so many negative adjectives attributed to its name.

In order not to join the group of people who are in debt or at some point in life have already been in debt with a credit card, the first step is to understand how this type of service works and take some measures to use it to your advantage. Throughout this article, we will answer the main questions about the credit card

Credit Card : How Does It Work?

The credit card is a widely used payment method in Brazil. It basically works like this: the card issuing financial institution establishes a credit limit that can be used by the cardholder. The latter, in turn, undertakes to pay the amount used on the maturity date previously agreed. If payment is not made on time, the holder will have to bear high interest, in addition to the late fee. We will talk about this in the next topics.

How Is The Limit Established?

Each institution has its own credit analysis criteria for granting the limit, which takes into account the applicant's entire financial history and profile. The financial institution initially grants a certain amount of credit which, depending on usage, may increase or decrease over time.

Installment Purchases: How Do They Affect The Limit?

According to the Central Bank, there are two possibilities that the bank that administers the card can adopt to reduce the value of the credit card limit installment purchases:

The credit limit decreases according to the total purchase amount. For example: you have a limit of 700 reais and made a purchase in a department store of 300 reais in installments in three installments without interest. As the total purchase price was 300 reais, its limit was automatically increased to 400 reais.

When the value of the next invoice is paid and, consequently, the value of one of the installments of 100 reais is deducted, your limit will increase from 400 to 500 reais. If you need to make a purchase whose value is greater than the limit available at that time, there are two things you can do:

  • Anticipate the installments that would be paid in the coming months and pay all at once on the next invoice;
  • Request an increase in the credit limit for the issuing bank, which will make a new credit assessment and grant or not a new limit.
  • The credit limit decreases according to the amount of the installment. Using the same example above, as the purchase of 300 reais was paid in three installments without interest of 100 reais, the value of its limit goes from 700 to 600 reais, since in this case, it is the amount of the installment that decreases the limit.
  • To find out which of these forms is used by your credit card company, reading both the invoice and the subscription contract is essential.

Card Rotary: Run Far Away

To stay away from debts, credit card users must always pay the full amount of the invoice. In order not to be in default, the cardholder has the possibility to make the minimum payment of the invoice, which is equivalent to 15% of the total amount. The remaining amount that has not been paid (balance due) will be charged on the next invoice plus interest on the card, called revolving credit.

According to Central Bank Resolution 4,549 in force since April 3, 2017, the debit balance can only be maintained in revolving credit until the next invoice is due. Thus, if the cardholder is unable to pay the full amount of the next invoice again, the bank must offer another credit line for payment in installments, as long as it is more advantageous for him.

Before this change, the customer could pay the minimum amount of the invoice every month, which generated an unpayable debt due to the snowball effect. But why is the rotary so badly spoken? To give you an idea, according to the Central Bank, the average of the fees charged from 11/27/2017 to 12/1/2017 on regular revolving credit, which covers customers who paid at least the minimum amount of the invoice, was 317 , 78% per year. This value is equivalent to 4,428% higher than the current Selic target , which is 7% per year on the day I write this article. To see the updated table of the average fees charged by each institution.

Fees Charged

According to the Central Bank, in addition to interest for late payment or partial payment of the invoice, banks may charge other fees related to the provision of credit card services, such as:

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  • Issuance of a duplicate card;
  • Use of credit card for cash withdrawal;
  • Use of credit card to pay bills (bills, phone bill, etc.);
  • Emergency credit assessment application.

In order not to be taken by surprise, check with the bank that issued your card the values for these services. Currently, there are institutions that do not charge the annual fee and issue a duplicate card, for example. Do enough research to avoid having problems with this type of charge in the future.

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