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Bank Credit Cards and Non-Bank Credit Cards
What are the differences and what major pitfall to avoid
Roughly 90% of Czechs own one or more payment cards, classified as debit cards or credit cards. The latest published statistics of the Czech National Bank speak of 1,500,000 credit cards held by Czechs in 2020. However, the use of credit cards in the Czech Republic is decreasing yearly. But why? One reason for their year-over-year decline is the mistaken belief that a credit card is a disadvantageous and expensive product with many "problems" associated with it. Let's explore these problems in this 24Hour Journal post.
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The Non-Bank Credit Card
Banks are the largest providers of credit cards in the Czech Republic. However, getting a credit card from them can be quite difficult, especially if you cannot prove a sufficient regular income (usually average salary or higher) or if you don't have a good credit history. If you struggle with getting your first credit card from the bank, you can get "nebankovní kreditní karta" or a so-called non-bank credit card. A non-bank credit card translates to a credit card that is not issued by a traditional bank but is often issued by private companies. Some examples of companies that offer these types of credit cards include HomeCredit, Cetelem, TESCO, and DATART, to name a few.
What is the difference between a bank and a non-bank credit card?
Requirements to prove the client's creditworthiness are the most significant difference. The advantage of non-bank credit cards is that so-called risky clients obtain them. For instance, people who have an entry in the register of debtors (a database that contains data of individuals and companies that help banks determine the reliability of their potential clients) or people who cannot prove their income, the chance that their application will be approved with a non-bank credit card is significantly higher than applying directly at a bank.
The disadvantage is higher interest rates can go up to 26%, compared with a credit card from a bank with an interest rate usually between 10 - 22%. Another disadvantage of a non-credit card from shops like Tesco or DATART is that they are often "restricted," which means you can only use it to pay for purchases in the given stores.
Apart from that, they are not very different from each other. Both offer benefits, such as interest-free periods, discounts, or a refund of part of the purchase value. However, bank cards can offer a broader range of benefits thanks to more business partners.
How to choose a credit card?
You can choose a credit card according to various criteria – e.g., the maximum financial limit, fees associated with using the card, or the length of the interest-free period. In addition, you can visit this website (https://prodej.mesec.cz/kreditni-karty-vypis/) which compares credit products and can help you choose a suitable card.
Is a non-bank credit card worthwhile?
A non-bank credit card pays off for those who know how to manage money and can calculate how much they can afford to spend. It also pays off in cases where the benefits associated with using the card are sufficiently advantageous and relevant for you - an example is a so-called cashback, where you will get a percentage back from each purchase or various discounts from project partners. Also, if your goal is to get a credit card but a bank will not approve your application, then a non-bank credit card may be the best option of last resort. After possessing this type of non-bank credit card for six months, the likelihood of applying and being approved for a wider range of credit cards is greater.
While obtaining a credit card in the Czech Republic is relatively cumbersome but straightforward, managing debt is another hurdle. Savvy financial advisors agree that credit card debt for personal consumption is bad debt. Instead, debt used as an investment into professional development or capital equipment is a more thoughtful way. But, if you use credit card debt, avoid the major pitfall of rolling one debt into another. Remember, credit card institutions want you to have debt because that's how they make money.