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What is Credit Card: Features, Advantages and Disadvantages of Credit Cards

Nuelson Penuel Tuesday, May 30, 2023 Finance

 
In this post, you are going to learn what is credit card, features of credit card, advantages and disadvantages of credit cards. ##What is Credit Card? Credit card is a type of financial product that allows consumers to borrow money from a lender (usually a bank) to make purchases. Each time you use a credit card to make a purchase, you are essentially taking out a mini loan from the credit card issuer. Credit cards often come with a credit limit, which is the maximum amount of money that you can borrow on the card. The credit limit is determined by your credit history, income, and other factors determined by the credit card issuer. Credit cards allow you to make purchases, pay bills, and access cash advances. They also offer a range of other benefits such as rewards programs, purchase protection, and travel perks. Credit card balances are typically due each month, and if you do not pay off the full balance, interest charges will accrue. Interest rates on credit cards can be higher than other forms of debt, such as personal loans or mortgages, making it important to pay off your balance in full each month. Credit cards can be a useful tool for managing your finances, but it's important to use them responsibly. Avoid overspending, pay your bills on time, and monitor your credit card balances regularly to prevent accumulating too much debt. ##Types of Credit Cards There are several types of credit cards available, each with its own advantages and disadvantages. Here are some of the most common types of credit cards: 1. Cashback credit cards: These credit cards offer you cashback rewards for your purchases. The rewards typically range from 1-5% of your purchases. 2. Rewards credit cards: These credit cards offer various types of rewards for your purchases, such as airline miles, hotel points, or gift cards. 3. Balance transfer credit cards: These credit cards allow you to transfer your existing credit card balance to a new card with a lower interest rate. 4. Secured credit cards: These credit cards require a deposit, which is used as collateral. They are typically used by individuals with poor or limited credit history to build or improve their credit score. 5. Business credit cards: These credit cards are designed specifically for small business owners and offer rewards and spending limits tailored to their business needs. 6. Travel credit cards: These credit cards offer rewards for travel-related expenses, such as airline miles, hotel stays, or discounts on rental cars. 7. Student credit cards: These credit cards are designed for college students and help them build credit while also offering rewards and benefits specifically for students. When selecting a credit card, it's important to choose one that matches your spending habits and needs. ##History of Credit Cards Credit cards were first introduced in the United States in the 1920s, but they did not become widely used until the 1950s and 1960s. At that time, hotels and oil companies began issuing credit cards that could be used at their establishments. In 1958, Bank of America (now known as Visa) launched the first general-purpose credit card, called the BankAmericard. The BankAmericard was the first credit card that could be used at multiple establishments, such as retailers, restaurants, and gas stations. It was initially used primarily on the west coast of the United States, but by the 1960s it had expanded nationwide. Mastercard (formerly known as Master Charge) was launched in 1966, followed by American Express in 1967. These companies competed with each other by offering different rewards and benefits to cardholders. In the 1980s and 1990s, the use of credit cards became increasingly widespread, as banks began issuing cards to virtually anyone who applied. This led to an increase in credit card debt and financial problems for many Americans. In response, the US government passed the Credit Card Accountability Responsibility and Disclosure (CARD) Act in 2009, which implemented new regulations on credit card companies and made it more difficult for them to take advantage of consumers. Today, credit cards are widely used worldwide and offer a variety of rewards and benefits, but they can also be a source of financial stress and debt for those who do not use them responsibly. ##Features of Credit Cards Credit cards typically come with a set of basic features that are standard across most issuers. Some common features of credit cards include: 1. Credit limit: This is the maximum amount of money that a cardholder can spend using their credit card. 2. Annual percentage rate (APR): This is the interest rate charged by the credit card issuer for carrying a balance on the card. The APR can vary depending on the card and the cardholder's credit history. 3. Fees: Credit cards may have annual fees, balance transfer fees, cash advance fees, and foreign transaction fees. Some cards may also charge fees for late payments or going over the credit limit. 4. Rewards and benefits: Many credit cards offer rewards such as cashback, points, or miles. Some cards also offer benefits such as travel insurance, purchase protection, or extended warranties. 5. Grace period: Most credit cards offer a grace period of between 21 and 25 days between the statement closing date and the payment due date. During this time, cardholders can pay off their balance without accruing interest. 6. Security features: Credit cards come with security features such as fraud protection and the ability to dispute charges. 7. Credit score monitoring: Some credit card issuers offer free credit score monitoring as a benefit to their cardholders. ##Advantages of Credit Cards Credit cards offer several advantages to consumers, including: 1. Convenience: Credit cards provide a convenient way to make purchases, both in-store and online. They also offer an easy way to pay bills and make recurring payments. 2. Build credit: Using credit cards responsibly can help consumers build their credit history and improve their credit score. 3. Rewards and benefits: Many credit cards offer rewards such as cashback, points, or miles, as well as benefits such as travel insurance, purchase protection, or extended warranties. 4. Fraud protection: Credit cards offer protection against unauthorized or fraudulent purchases, and many issuers have zero-liability policies for cardholders. 5. Grace period: Most credit cards offer a grace period, allowing cardholders to pay their balance in full each month without accruing interest. 6. Flexibility: Credit cards offer flexibility for unexpected expenses or emergencies, providing a way to borrow money when needed. 7. Currency exchange: Credit cards can be used for currency exchange while travelling abroad, often providing better exchange rates than exchanging cash. ##Disadvantages of Credit Cards Credit cards also have several disadvantages that consumers need to be aware of, including: 1. High-interest rates: Many credit cards have high-interest rates, which can make it difficult for consumers to pay off their balances and lead to expensive debt over time. 2. Fees: Credit cards often charge fees for late payments, balance transfers, cash withdrawals, and foreign transactions, which can add up quickly. 3. Temptation to overspend: Having a credit card can make it tempting to overspend, leading to debt that can be difficult to pay off. 4. Credit score impact: Using credit cards irresponsibly or missing payments can damage a consumer's credit score, affecting their ability to obtain loans or credit in the future. 5. Identity theft: Credit cards are often a target for fraud and identity theft, putting cardholders at risk of unauthorized purchases. 6. Limited acceptance: Not all merchants accept credit cards, which can be inconvenient for consumers who rely solely on their cards for payments.

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