What are credits cards?

Credit cards are small pieces of plastic given to consumers with which they can make purchases as part of a payment plan. With credit cards, the credit issuing company is extending the consumer a credit line that they can use each month to make purchases. Each month, the consumer must pay off his total balance of purchases in order to avoid late charges or interest rate charges. The amount of credit (the credit limit on the credit card) offered to a consumer is usually based on his credit history and credit score. The credit card company is offering the consumer a chance to revolve some debt and credit for the possibility of collecting some interest rate charges and fees.

How are some benefits of using credit cards as consumers?

Credit cards are all about convenience. Credit card transactions basically amount to small short-term loans from the credit card company to the consumer. During these short periods, the consumer can even earn interest on his money before paying off the balance of the credit card. Also, when traveling, credit cards are a convenient way of making purchases without having to exchange cash into the local currencies.

Credit card companies also offer lots of different incentive programs to attract customers. These can include credit cards that give cash back, gas rewards, reward points, no annual fees, travel rewards, or balance transfers. Many credit cards also offer a low or even zero introductory interest rate for new credit accounts.

How are some potential pitfalls of using credit cards as consumers?

The biggest problem with credit cards is that they charge the consumer a high interest rate on any balance that is not paid off each month, especially after the introductory period of low interest rates have passed. Also, being able to use the credit card in no way indicates that the customer is able to pay off the balance each month. This can lead to an accrual of fees and interest charges that accumulates quickly leading to more and more debt. Irresponsible credit card usage has lead to bankruptcy for some consumers. Some credit card companies actually have sneaky practices of quickly raising fees and interest rates that recently Congress has passed legislation targeting some of these practices.

What are some benefits of using credit card payment acceptance system as a business?

Businesses and merchants benefit greatly from being able to accept credit cards since the credit card company is guaranteeing payment to the merchant even if the consumer defaults on his credit balance payment. Accepting credit card payments also reduces the amount of cash on hand and discourages thefts by employees or robbers. With credit cards, businesses are able to accept payments from customers “on credit” without having to evaluate the credit history and credit file of each of them.

Of course, business have to pay fee to the credit card company for the benefits of being able to accept credit card payments. The fee is usually around 1% to 3% of the transaction plus a minimal flat charge of 5 to 50 cents. These fees actually make it possible for a merchant to lose money on small transactions so many of these merchants will impose a minimum transaction amount to accept credit cards from their customers.

What are the post popular kinds of credit cards?

The most popular kinds of credit cards accepted at the most locations worldwide are Visa, Mastercard, and American Express Amex. Discover and Diner’s Club are also accepted at many locations.

What are secured credit cards?

A secured credit card is an option for those consumers who may have poor or no credit history. With a secured credit card, the consumer deposit an amount of money into an account and receive a credit card with the credit limit usually about 1 to 2 times the amount of the deposit. An example is a consumer deposits $500 into an account and receives a credit limit credit card of $500 - $1000 per month. With secured credit cards, the purchases are not taken out of that deposit account (unless delinquent), and the consumer is expected to pay off his balance each month as per any other credit card type. Secured credit cards are a good way for those with poor or no credit score to obtain a credit card and to rebuild or build their credit history.

What are prepaid credit cards?

A prepaid credit card is not actually a credit card, since the consumer is not getting any credit line from the credit card issuing company. Prepaid credit cards do, however, have a brand on them such as Visa, Mastercard, American Express, or Discover so that you can use them at any location that accepts those. How prepaid credit cards work is that you deposit money into an account, and any purchases you make are simply subtracted from that total. Since there is no actual credit or balance being floated, the consumer is never charge any interest. Prepaid credit cards are a good tool for parents to give their children some access to money with a hard cap on the amount.