Credit Card (2023) : What It Is?

What is a Credit Card?

A credit card is a thin rectangular piece of plastic or metal issued by a bank or financial services company that allows cardholders to borrow funds to pay for goods and services with merchants. may accept cards for payment. Credit cards require that cardholders repay the amount borrowed plus any applicable interest, plus any additional agreed charges, either by the billing date or over time.

Credit Card

In addition to a standard line of credit, a credit card issuer may also grant cardholders a separate cash line of credit (LOC), allowing them to borrow money in the form of a cash advance at a bank teller, ATM, or Access can be obtained by credit. Check card facility. Such cash advances typically have different terms, such as no grace period and higher interest rates, than transactions that involve accessing a central credit line. Issuers typically pre-set borrowing limits based on an individual’s credit rating. A large majority of businesses allow customers to make purchases using credit cards, one of today’s most popular payment methods for purchasing consumer goods and services.


Understanding Credit Cards

Credit cards typically charge a higher annual percentage rate (APR) than other forms of consumer loans. Interest charges on any unpaid balances charged to the card are usually applied approximately one month after purchase (except in cases where there is a 0% APR introductory offer for an initial period after account opening). The balance was carried forward from the previous month – in which case no grace period is given for new charges.

By law, credit card issuers must offer a grace period of at least 21 days before interest starts accruing on purchases.

Therefore, it is a good practice to pay off the balance before the end of the grace period if possible. It’s also important to understand whether your issuer accrues interest daily or monthly, as the former translates into higher interest charges until the balance is paid off. This is especially important to know if you want to transfer your credit card balance to a card with a lower interest rate. Accidentally switching from a monthly accrual card to a daily card can potentially eliminate savings at a lower rate.

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Types of Credit Cards

Most major credit cards—including Visa, Mastercard, Discover, and American Express—are issued by banks, credit unions, or other financial institutions. Many credit cards attract customers by offering incentives such as airline miles, hotel room rentals, gift certificates to major retailers, and cash back on purchases. These types of credit cards are commonly called rewards credit cards.


To build customer loyalty, many national retailers issue branded versions of credit cards, with the store name emblazoned on the face of the cards. Although it’s generally easier for consumers to qualify for a store credit card than a major credit card, store cards can only be used to make purchases at issuing retailers, giving cardholders special discounts. , may offer benefits such as promotional notices, or special sales. . Some major retailers also offer co-branded major Visa or MasterCard credit cards that can be used anywhere, not just in the retailer’s stores.


A secured credit card is a type of credit card where the cardholder secures the card with a security deposit. Such cards offer limited lines of credit equivalent to security deposits, which are often returned after cardholders demonstrate frequent and responsible use of the card. These cards are often sought by people with limited or poor credit history.


Like a secured credit card, a prepaid debit card is a type of secured payment card, where the available funds match the amount one has already deposited in a linked bank account. In contrast, unsecured credit cards do not require security deposits or collateral. These cards offer higher credit and lower interest rates compared to secured cards.

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Building credit history with credit cards

When used responsibly, regular, unsecured, and secured cards can help consumers build a positive credit history while providing a way to shop online and eliminate the need to carry cash. Because both types of credit cards report payments and purchase activity to the major credit agencies, cardholders who use their cards responsibly can build strong credit scores and potentially close their lines of credit. Can extend and – in the case of secured cards – potentially upgrade to regular credit. Card


Building a good credit history is a combination of things — making regular, on-time payments, avoiding late payments, keeping credit utilization under your credit limit, and maintaining a low debt-to-income ratio. By making responsible purchases and paying them off on time, the credit score will increase, making a consumer more attractive to other lenders.


How do I get a credit card if I have no credit?

Building credit history can be a bit of a catch 22. If you have no credit, merchants or banks are less likely to give you credit because you are an unproven borrower. Opening a secured credit card is one of the easiest ways to get started. Since borrowers are borrowing only the money they put down as a deposit, there is little risk for the lender, and it gives them a snapshot of your spending and payment habits. Is.


Another way to start building credit is to become an authorized user on an established credit account, such as a parent’s or spouse’s. The cardholder’s credit history will appear on your account, adding longevity to your credit report. But make sure that the person you partner with has good credit habits. If their financial choices are poor, it will reflect on yours as well.


Are credit cards’ annual percentage rates (APRs) fixed or variable?

Many credit cards will have both types of annual percentage rates (APRs). To find out what kind of APR you have, read the cardholder agreement that comes with your credit card. Card issuers must legally disclose what type of APR they have and what it is. If a fixed APR changes, they must inform customers of that as well.

Some credit cards have fixed APRs for purchases but variable APRs for cash advances or late payments. Read the fine print to be sure.


What is the annual fee of the credit card?

The annual fee on a credit card is the fee charged by the card issuer for extending the credit card to you. Some cards don’t charge an annual fee, but others—often cards that offer incentives like rewards or cash back—can charge an annual fee of $50 to $700.


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