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What Are Credit Cards?
By: Rudy Hadisentosa
In layman's terms, credit card is a small piece of plastic that easily fits in
your wallet and acts as a substitute for cash. However, that's really a layman's
definition. A credit card is actually an agreement of credit between you (the
person who uses the credit card) and the financial institution (who provides you
credit or that you will pay back the borrowed money (the expenditure you make
using your credit card) to the financial institution in accordance with the
terms and conditions defined in the agreement. In plain words, it's an agreement
between a lender and borrower where the lender is the credit card company and
the borrower is you.
The application for credit card is actually the service agreement and has all
the terms and conditions that applies to your credit card. You should always
read these terms and conditions carefully, especially the ones related to fees,
interest rates or any kind of monetary charges. Generally, the credit card
companies charge a small annual fee to provide this service to you.
The general eligibility criterion for acquiring a credit card is pretty simple -
you must be over 18 years and have a regular source of income. However, the
credit card company will check your credit history and ask you to provide
references etc before they qualify you as eligible for getting a credit card
from them. Credit history is maintained by all the financial institutions who
give credit and you might already be using the services of one or more financial
institution in the form of a mortgage or a car loan. Credit history is nothing
but your payback history of any credit you have taken from any financial
institution.
Credit cards have undergone a lot of transformation since their advent. Most
credit card companies provide a range of products (or credit cards) to cater to
the needs of various sections of the society and to attract more and more
customers. These include co-branded cards which are actually collaborations
between a credit card company and a business organization (e.g. a departmental
store). Such co-branded cards provide discounts to the consumer whenever he/she
pays the business organization using that particular credit card. One such
example of a co-branded card is the American Express Delta Sky Miles Card. There
are other cards which are in fact floated by big business chains or department
stores themselves e.g. JCPenny or in fact any big business. Such cards offer
special benefits to their customers. Thus there are all sorts of credit cards
available in the market and you really need to evaluate your needs before you
arrive at the card which suits you the best.
However, all the credit cards or credit card products can really be classified
into 2 types of credit accounts:
1. Revolving account: As the name suggests, in this type of account the credit
revolves every month i.e. you have the option to make either a full payment
every month or a partial one. Of course, if you make no payment then besides the
amount you owe, you also have to pay a penalty fees and interest. Revolving
accounts are the most popular ones and the department-store credit cards or the
ones issued to individuals initially belong to this category. When one refers to
a credit card in general, one is referring to a revolving credit type of
account.
2. Charge type: Here, the agreement is that the consumer will pay back full
amount owed every month. So no interest charges are involved here unless you
default.
This should give you a fair idea about what we mean by a credit card. Thus
begins your journey on the fascinating world of credit cards.
About the Author:
http://www.ccn.com/ is a free online credit cards review and application website. We offer credit cards selection from visa,master cards, discover, american express and many others. We have quite some categories and hundreds of credit cards selection
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