Credit Cards

A credit card is simply a small bit of plastic that has been made to fit perfectly in your wallet

. But not only is it a bit of plastic, it is a very powerful piece of plastic, which has monetary value. So it really is cash compressed into plastic. To define the credit card, it is a well thought out credit system. It is a way that the holder of such a card, can borrow or use money they have borrowed from a bank or lending company to purchase things either in stores or online.

You need to apply for a credit card using an application form that becomes an agreement between you the consumer and the credit card supplier. The credit card company must approve this application in order for you to obtain a credit card, and part of this process requires a credit check, to ensure that you are likely to pay your credit card statement each month.

If approved, the credit card company will provide the consumer with the credit card. The small bit of plastic holds electronically encoded security information on the magnetic strip that you will see on the back of the card. The information on this magnetic strip is what authorises payments whenever the card holder uses the credit card. The consumer can now use the card for shopping or withdrawing cash from an ATM. Of course this is dependent on whether or not the merchant can accept credit card payments, however most shops nowadays can.

Currently there are eight main credit card organisations and most of them operate in a lot of countries worldwide. These are American Express, Citi, Diners Club, Discover, JCB, MasterCard and VISA. Master card and VISA are probably the most well known and most used ones. Then there are credit card suppliers or issuers who have tie-ups with these organisations and issue credit cards on their behalf e.g. you have various banks that issue VISA cards (like HSBC VISA card)

To make a payment using a credit card, the credit card has to be either swiped into special credit card processing machine (when shopping in person at shops) or the details of the credit card have to be entered on the merchants website (when shopping online).

The credit card supplier sends the bill for these transactions to the consumer who is then required to pay either the full amount or a partial (minimum) amount. If you pay in full, the credit card supplier doesnt charge any interest on the amount you owe, otherwise the pre-agreed interest rate is charged. If you dont pay even the minimum, you might land up with a late fee too. Moreover, the credit card supplier generally puts a limit on the maximum amount you can spend per month using your credit card and once this limit is reached the card will then be declined by retailers, so it is wise for the consumer to keep an eye on what they are spending and how much they have left available to spend.

Credit cards are very good to have not only for day to day spending, but a lot of people just use them as a sort of backup in case of an emergency, i.e. you need a new washing machine etc.

by: james galloway

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