The purpose of this website is to provide a free informational article about credit cards .
If you haven't had your own credit card account, here's a brief overview to help you understand how it may fit into your money management plan. Using credit wisely is an important tool in establishing your financial independence. Credit cards are useful for emergencies, to build credit history, or for making travel arrangements, for example. However, you must beware that the convenience offered by credit cards may be seductive in a society of instant gratification where the line between needs and wants is very thin. Credit cards make it easy to have what we want right now, but the price can be very steep. A credit card is not a free cash substitute. A credit card establishes a revolving credit agreement between you and the issuer. You are given an account with a credit limit; once you pay back the amount you charge, that money is available to use again up to the credit limit. By contrast, a loan is installment credit. The lender disburses a loan amount that you are required to pay back over time. The payments you make include interest on the remaining balance until the loan is repaid in full. To obtain more money from a lender, you apply and qualify for another loan. Debit cards should not be confused with credit cards, even though they may have a VISA or Mastercard logo. A debit card transaction withdraws money directly from your checking account and should only be used when you have sufficient funds available to avoid an overdraft fee. When it comes to purchases, using a debit card that won't damage your credit history may be the best type of card for you as a student. Several types of credit cards are available that serve different purposes. VISA and Mastercard are bank cards issued through banks that are easy to get and tend to be accepted just about everywhere. Charge cards like American Express and Diners Club are entertainment cards. Traditionally, these cards required the balance be paid in full every month, but this is no longer always the case. Department store cards, issued by each store individually, and gasoline cards have terms of agreement that vary according to each company. Secured accounts require you open a savings account that functions as your credit limit. Credit cards are small plastic cards issued to the customers of companies who provide credit.
A credit card is different from a debit card. Rather than remove money from the user's account after every transaction, credit cards lend money to the user to be paid to the merchant when a purchase is made. Credit cards allow the consumer to spend money they do not have at the cost of having interest charged. Most credit cards are the same shape and size as specified by the ISO 7810 standard. The most common credit card size, known as ID-1, is 85.60 × 53.98 mm. When a member of the public applies for a credit card they sign a contract with a credit provider. In this they agree to pay their credit card issuer whenever they use their credit card to make a purchase. The cardholder indicates their consent to pay by signing a receipt with a record of the card details and indicating the amount to be paid or by entering a Personal identification number (PIN). Many merchants now also accept verbal authorizations via telephone and electronic authorization using the Internet, known as a 'Card/Cardholder Not Present' (CNP) transaction. Electronic verification systems allow merchants to verify that the card is valid and the credit card customer has sufficient credit to cover the purchase in a few seconds, allowing the verification to happen at time of purchase. The verification is performed using a credit card payment terminal or Point of Sale (POS) system with a communications link to the merchant's acquiring bank. Data from the card is obtained from a magnetic stripe or chip on the card; the latter system is in the United Kingdom commonly known as Chip and PIN, but is more technically an EMV card. Each month, the credit card user is sent a statement indicating the purchases undertaken with the card, any outstanding fees, and the total amount owed. After receiving the statement, the cardholder may dispute any charges that he or she thinks are incorrect. Otherwise, the cardholder must pay a defined minimum proportion of the bill by a due date, or may choose to pay a higher amount up to the entire amount owed. The credit provider charges interest on the amount owed (typically at a much higher rate than most other forms of debt). Some financial institutions can arrange for automatic payments to be deducted from the user's bank accounts, thus avoiding late payment altogether as long as the cardholder has sufficient funds. Credit card issuers usually waive interest charges if the balance is paid in full each month, but typically will charge full interest on the entire outstanding balance from the date of each purchase if the total balance is not paid. The general calculation formula most financial institutions use to determine the amount of interest to be charged is APR/100 x ADB/365 x number of days revolved.
Take the Annual percentage rate (APR) and divide by 100 then multiply to the amount of the average daily balance (ADB) divided by 365 and then take this total and multiply by the total number of days the amount revolved before payment was made on the account. Because of intense competition in the credit card industry, credit providers often offer incentives such as frequent flyer points, gift certificates, or cash back (typically up to 1 percent based on total purchases) to try to attract customers. Low interest credit cards or even 0% interest credit cards are available. The only downside to consumers is that the period of low interest credit cards is limited to a fixed term, usually between 6 and 12 months after which a higher rate is charged. According to Encyclopedia Britannica, the use of credit cards originated in the United States during the 1920s, when individual companies, such as hotel chains and oil companies, began issuing them to customers for purchases made at those businesses. This use increased significantly after World War II. The first universal credit card - one that could be used at a variety of stores and businesses - was introduced by Diners Club, Inc., in 1950. With this system, the credit-card company charged cardholders an annual fee and billed them on a monthly or yearly basis. Another major universal card - "Don't leave home without it!" - was established in 1958 by the American Express company. Later came the bank credit-card system. Under this plan, the bank credits the account of the merchant as sales slips are received (this means merchants are paid quickly - something they love!) and assembles charges to be billed to the cardholder at the end of the billing period. The cardholder, in turn, pays the bank either the entire balance or in monthly installments with interest (sometimes called carrying charges). The first national bank plan was Bank Americard, which was started on a statewide basis in 1959 by the Bank of America in California. This system was licensed in other states starting in 1966, and was renamed Visa in 1976. Other major bank cards followed, including MasterCard, formerly Master Charge. In order to offer expanded services, such as meals and lodging, many smaller banks that earlier offered credit cards on a local or regional basis formed relationships with large national or international banks.
