A credit card is a form of payment card, which is issued to a user often termed as a cardholder to enable the user to pay for either goods or services obtained from a merchant. The payment comes as a result of the instructions from the cardholder to the card issuer to pay that given merchant a certain amount of money. When the money is being paid to the merchant, the account linked to the credit card will be deducted the amount plus any transactional charges incurred in the course of the transaction.
Creation of a credit card.
The issuer of a credit card is usually a bank. For one to be a holder of a credit card, first of all, the person has to have a bank account opened in the bank where he or she intends to take the credit card. Once the bank account has been opened, a certain amount of money is deposited into the account. This amount varies in different banks. After that, the bank account holder applies for a credit card from that bank. After a complete application and verification process, the account holder is issued with a credit card.
Types of credit cards.
1. Standard credit cards.
These credit cards do not offer any frill or rewards. They are easy to understand; therefore they are recommended for those people who want a credit card that is not complicated. Most standard credit cards allow one to have a revolving balance to a recommended limit. Exceeding this limit will lead to no allowance in credits.
2. Balance transfer credits.
Most credit cards come with the ability to transfer balance. Balances transfer credit cards differ from the rest in that they allow transfers at low introductory rates until a certain period elapses. Money saved using these cards has a higher interest rate compared to the other money.
3. Rewards credit cards.
They are cards that offer rewards when a purchase has been made. Reward credit cards are subdivided into cash backs, point's cards, and travel cards. The choice of the card to use depends on the preference of the cardholder.
4. Student credit cards.
These are cards which are specifically made for college students. The cards are created with the knowledge that students are young and do not have a lot to put into the accounts of these cards. Mostly, student cards come with added advantages such as low interests and rewards.
5. Business credit cards.
These cards are created specifically for those people who have a business. The cards provide the business owners with an easy method of keeping business and most business transactions. The card facilitates separation of the business-related matters from personal issues.
Basic features of a credit card.
Credit cards often differ on what they offer, but most credit cards have the same features. It is important to study the feature of a credit card so that it is easier to choose what type of credit card to use.
1. Credit limit. A good number of credit cards have certain amounts of limit. The limits include purchases, balance transfers, finance charges, cash advances, and fees. The credit cards cannot allow one to go over his or her credit limit. If one goes beyond the recommended limit, the bank will raise the interests of the credit cards, or charge you an over limit fee.
2. Balance. The balance in your credit card is the amount you owe an entity. This amount includes the purchases made, finance charges, and fees incurred. The higher you have credit charges, the more you lower available credits for you. Higher balances in the credit card will raise your credit utilization at the same time lowering your credit score.
3. Annual percentage rate. Annual percentage rates are the interest rates that will be applied to your balance once the balance is carried past the grace period. Different credit cards have different annual percentage rates depending on the type of transaction that was made.
4. Grace period. This is the amount of time up to which you have to pay for the balances one has. When the grace period is exceeded, then there is a fee one has to pay.
5. Credit card fees. A credit card may incur various fees that will be charged from the credit card accounts. These fees include a late fee, annual charge fee, financial charge, over limit charge among other charges.
Credit cards play a significant role in the mortgage industries. They incur low mortgage rates compared to some other forms of mortgage. The cards have provisions that will ensure there is a significant and secure transaction. Research on credit cards and mortgage rates should be done carefully to avoid making hasty decisions that may affect you afterward. It is important to consult the bank on matters concerning the credit card before applying for that credit card.