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Credit Card - The Responsible User's Guide

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You use a credit card to withdraw money, to pay or to make bookings. But how do credit cards actually work, what are the different types and what do you have to pay special attention to? Our financial flow recommendation on the best credit cards can be found below!

What is a credit card and how does it work?

A credit card is a "payment card" issued by a credit card provider and a credit card issuer. If your application for the card is approved, you can use it to withdraw money, make payments and book transactions worldwide. With a "real" credit card, you are granted a small monthly credit for this purpose with a fixed credit limit, which you then pay off monthly or over a longer period of time.

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Credit cards are each assigned to a credit card provider who is responsible for the payment system, i.e. the necessary technology behind the credit card. These providers issue licenses to use this system and guarantee, for example, to merchants that they will actually receive their money. The best known of these providers, which also share 90% of the market, are Visa and MasterCard, which are the most widely accepted worldwide. The third largest provider is American Express.

Credit card issuers, in turn, are credit institutions (usually banks) that obtain so-called issuing licenses from a credit card provider to use the respective payment system. The issuers also determine the conditions for a credit card. In some cases, the issuing banks also cooperate with companies such as Amazon or Ikea.

Credit cards: "Real" credit card, debit card, prepaid card

Credit cards are divided into 3 types:

  • "real" credit card (with credit line)
  • Debit card
  • Prepaid card

Actually, only the real credit cards, which are further divided into charge cards and revolving cards, are actual credit cards. This is because only with these cards does the credit card issuer (usually a bank) grant the user a small loan, so to speak, which the user must repay monthly or within a fixed period of time.

With debit cards, the amounts used are deducted directly or within a few days from the associated current account. You can then use this account to make transfers or request direct debits. With prepaid cards, on the other hand, you pay credit into a collective account of the bank, which is then assigned to your card. Therefore, with a prepaid credit card you can not use the usual account functions.

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"Real" credit cards - Charge Cards & Revolving Card

Charge cards are among the actual credit cards. With them, the user receives a certain credit limit. He can use this freely in the billing month. At the end of the month, the credit card is settled and the outstanding amounts are billed. At the beginning of the new month, the invoice amount is usually debited from the agreed current account by direct debit. With some charge cards, the user has to make a transfer himself. These cards include, for example, the DKB credit card or the comdirect Visa card.

Revolving cards are also "real" credit cards. Unlike the charge credit card, a revolving credit card does not always charge the entire monthly amount, but only a previously agreed portion. Usually 10-25% is used for this partial payment, but an individual percentage can also be set. However, we do not recommend using this feature and paying off the used amount on a monthly basis - otherwise high interest rates may be incurred. In addition, most providers have a minimum repayment that you must make each month. Revolving cards include, for example, the Hanseatic Bank Genialcard or the Barclaycard Visa.

You can usually tell whether it's a credit card or a debit card by the lettering on the card itself. | Image: mastercard.de

The debit card - direct debit from the account

The debit card is actually not a real credit card - but it is often referred to as such. With a debit card, no credit line is granted. Therefore, it can only be used if the linked checking account has sufficient funds. All transactions are deducted directly or within a few days from the associated checking account. This is why it is also called a "debit" card - debit comes from English and means "direct debit".

However, some banks offer an overdraft facility, which is similar to a credit line. Here, too, interest is charged, but there is no monthly statement or partial repayment.

The associated accounts for debit cards always have an IBAN (International Bank Account Number) and a BIC (Bank Identifier Code), which you can use for transfers or direct debits.

Incidentally, the best-known debit card in Germany is the Girocard (formerly EC card). It is issued with most current accounts and is equipped with the V-Pay (Visa) or Maestro (MasterCard) payment system. There are also debit cards that have a credit card number and are equipped with the classic Visa or MasterCard payment system typical for real credit cards. Thus, these cards can also be used for online shopping or hotel bookings and differ from charge cards and revolving cards only in the method of repayment. These credit card-like debit cards include, for example, the N26 Mastercard or the ING Visa.

The prepaid card - Paying with topped-up credit

A prepaid credit card works similarly to a debit card. It can only be used if sufficient funds are available, as no credit line is granted here either. However, a prepaid card is not linked to a separate checking account; instead, you transfer your balance to a collective account of the credit card issuer using your card number. The money can usually only be transferred from a fixed reference account. This is why you cannot, for example, have your salary paid into this card account or make transfers to third parties yourself.

Prepaid credit cards are particularly worthwhile for minors, who can thus dispose of their pocket money in a regulated manner. Prepaid cards are also useful for trips, where the planned budget is loaded onto the corresponding card account in advance.

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What are the most important things to look for in a credit card?

There are some points you should consider when choosing a credit card. Depending on what you want to use the card for, these points are important in different ways. Here is an overview of the most important factors:

  • Checking account commitment
  • Annual fee
  • Repayment
  • Debit interest
  • Foreign currency fee
  • Cash withdrawal
  • Acceptance
  • Additional services

Current account: With or without?

The decision whether to choose a credit card with or without a checking account depends largely on whether you need an (additional) account. If you already have a good checking account that you are satisfied with, a credit card without a checking account is worthwhile. This means less work for you, because you do not have to transfer money to an extra account, but the credit card billing is done from your current account.

In addition, some credit cards with a current account, such as DKB or ING, a minimum deposit (usually of at least $700 per month) is required to get favorable conditions. Which cards are worthwhile with or without a current account, you can find out in our recommendations.

Annual fee: only useful for additional services

Meanwhile, you get most credit cards without a fixed annual fee. Most credit card issuers then finance themselves through debit interest, which you are charged for partial payment, fees when withdrawing or paying outside the us zone.

An annual fee only makes sense if you get extra services in return. These include, for example, various travel and health insurances. In most cases, however, it's much better to take out separate insurance policies for exactly what you really need.

Some cards also offer other extras, such as cash back, which allows you to save money when ordering online, or the opportunity to collect miles. One example is the Eurowings credit card, which gives you one mile for every dollar you spend. This can be worthwhile for you if you travel a lot or pay a lot with the credit card.

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Repayment & debit interest: Watch out for preset partial payment!

Repayment is an important factor that can easily be overlooked with credit cards. This is because so-called revolving cards often already have a partial repayment set. This means that after one month (in some cases up to 3 months) you start repaying the issued amount - but only with a small part. On the remaining amount, the so-called debit interest is then due, which in most cases is in the double-digit range.

So you should avoid this at all costs. In most cases, this is also possible by manually (in online banking or the app) setting the partial repayment to 100%. This way, the amount owed will always be debited in full each month.

With other credit cards, however, you cannot choose to repay by direct debit, as is the case with the TF Bank credit card, for example. This means that you have to make the repayment every month by bank transfer. If you forget to do this, the so-called debit interest is due here as well.

By the way, debit interest is also due if you use the overdraft facility. For cards without installment facility, but with overdraft facility, the interest rates are usually in the high single digits - so this can also be expensive. So it's important to make sure that the debit interest on a credit card is as low as possible and, at best, not due at all.

Foreign currency fee: important outside the us zone

The foreign currency fee is charged when you pay or withdraw money outside the us zone. This fee is usually around 1-3%. It is especially important when you are dealing with larger amounts. However, there are also cards that do not charge a foreign currency fee, such as the Barclaycard Visa. So if you travel a lot outside the us zone, you should pay attention to a low foreign currency fee. Costs can still arise for you if your credit card issuer or the ATM operator where you withdraw charges extra fees for withdrawing money.

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Withdraw cash: Consider costs / limit

When withdrawing cash with credit cards, you have to consider a few things. Here, quite different costs can be due. 4 factors you must consider:

  • Do you withdraw domestically or abroad?
  • If abroad: US zone or non-us zone?
  • Is there an additional foreign currency fee?
  • Is there a limit on free withdrawals?

Before you apply for a credit card, you should find out how much you will be charged in each of these cases. Depending on whether you pay a lot or little in cash or often travel abroad (in dollar), you can decide whether a credit card is suitable for you or not.

Some credit cards also set a limit on how much money you can withdraw per day or per month. You should also find out this beforehand to avoid getting into trouble. With other credit cards, such as the Barclaycard Visa or the DKB credit card, you must withdraw at least $50 per transaction.

Attention. Regardless of the conditions of a credit card, cash withdrawals can always incur costs from the ATM operators. However, ATM operators are obliged to display these costs during the withdrawal process. Some credit card issuers offer to refund these costs afterwards, but this process is usually quite time-consuming.

Acceptance: Which credit card can be used where?

Another important factor is where a credit card is accepted and where it is not. This is because credit cards are not accepted everywhere in Germany. For example, smaller stores sometimes only accept Girocards that work via the V-Pay or Maestro system, which is widely used in Germany. In all larger stores and at most ATMs, however, you can use your Visa or MasterCard. You can tell where you can use which card by the respective logo, which is displayed on the vending machine, often on the door of stores and restaurants or on card readers.

Visa and MasterCard are also the largest providers of credit cards worldwide. Both are represented about equally often, which is why it doesn't really matter whether you have a credit card from Visa or MasterCard.

Cards from providers such as American Express or Diners Club are accepted less frequently. Here you need to find out beforehand where you can use the cards.

Financial flow recommendation: These credit cards are really worth it

Here you see now, after research, community survey and model development, the evaluation of our big credit card comparison:

Best credit card without a checking account

In our big credit card comparison, the Hanseatic Bank Genialcard won as the best credit card without a checking account with 4 stars. It stands out above all for its free withdrawals in Germany and abroad, as well as no foreign currency fee. The debit interest rate is also relatively low at 12.82%. In addition, the card offers online cash back of up to 13%. One thing to note about the card is the withdrawal limit of $500 per day.

Best credit card with current account

As the best credit card with a checking account, we can choose the DKB credit card with 4 1/2 stars. The DKB Visa also has no withdrawal fees at home and abroad and no foreign currency fee. However, it is necessary that you use the associated account as an active customer, ie, have a monthly cash inflow of at least $700. In addition, you must always withdraw at least $50.

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