Credit Cards: Introduction-
A credit card is simply a card that allows users to loan money from banks in order to purchase items. This card can be used to purchase items like clothing, phones, and DVDs. It can also be used to buy intangible services like food, movie tickets, and travel. Credit cards are issued by banks. An example of a well-known bank is Wells Fargo. The bank is responsible for a consumers interest rate, fees, as well as rewards they can get. Another part of a credit card system is a network. One network example is American Express that processes transactions. Networks decide the places a card can be accepted. One pro of a credit card is a larger purchase can be made immediately and then pay it over time. A con is debt could occur with not being careful with spending.
Credit Card Types
There are four main types of Credit Cards. They are rewards, low interest, balance transfer, or secured credit cards. A rewards card simply give consumers rewards on what they buy. One example are flat interest rates of a percentage of one to two. Rewards come in different forms like gift certificates or free nights at hotels.
Low Interest or low APR credit cards are the best option for those who carry some debt from the credit cards throughout the months. Depending on the event, a card can be chosen that has a reliably low ongoing interest rate or one with no interest for an introductory period. Balance transfer cards are a good choice for people who have a major amount of credit card debt. With this card, debt can be shifted from the current card to a new one. A period will be given of six to twenty-one months to have it paid off without interest. However, a one-time balance transfer fee would be included that can go up to five percent. One more credit card example is a secured credit card. This is meant for those who have bad credit. These credit cards have users post collateral when they open up their account. This is often over or equal to the credit limit. A secured card allows consumers to improve their credit score and in time get an unsecured card. Also, something else that can be used are personal loans. They are good for financing over extended periods of time. An example of something personal loans can be used for is beginning a small business.
Money Making Methods
There are three methods that credit card companies use to make money. Transaction fees are an issue for merchants only. They get charged each time they use their cards. Another method are interest payments which occur when a user’s debt is not fully paid off. A final example is a fee. Three types of fees are annual, cash advance, and late payment fees. Annual fees are not included in many of today’s credit cards, only if they give big rewards or are made for people with less than good credit. Something important to remember is to make sure the minimum monthly payment is dealt with on time. If that is not taken care of consequences may occur like late fees and higher interest rates. The credit score may suffer too.
More Fees
In addition to the fees mentioned above, there are several more types of fees. Two groups of fees are transaction and penalty fees. An example of a transaction fee is a transfer fee. There are some cards that do not have this fee charged. This is when debt is moved over from a credit card to another credit card. The fees can amount to three to five percent of the amount transferred. An example of a penalty fee is an over-the-limit fee. If a user exceeds the credit limit the transaction could still be approved by the issuer of the card. However, these types of fees are now rare because there is an option of over-limit coverage. Another example is a returned payment. This occurs if a user attempts to pay their credit card bill and they are not able to pay it because of something like a bounced check. If something like that happens that user would have to pay that fee.
A Simple Understanding of Credit Cards
