Types Of Credit cards

Credit cards are ubiquitous in our lives. There are three main types of credit cards that are common in America.

They are travel and entertainment cards such as American Express or Diners Card. These have to be paid in full at the end of the month and are liberal on spending limits.

The second major cards are the bank cards such as Master Cards, Visa, GM, and Ford cards sponsored mainly by the banks. The bank defines spending limits, which in the bank parlance, is known as the credit lines, and each offers different terms and conditions.

Banks offer a choice of payment methods, either pay the balance in full with no interest or pay a minimum part or some part of the balance with a finance charge.

The other major type of card is the retail store cards such as Sears, J.C. Penney, Shell or Mobil. These cards, known in some countries (the ones from gas companies) as fuel cards are only accepted in specific countries and usually do not have annual fees. There is a wide disparity in the terms and conditions for the cards.

Different types of credit cards offer several different options, depending on what your needs are. Some are geared toward individual consumers, while others are set up in ways that work best for small business needs. To know what type of credit card fits your needs, you should review a few of your options.

The history of credit cards

Today it’s referred as the old plastic but all credit card buffs know that the first credit cards were not made of plastic but cellulose and metal plates.

Encyclopedia Britannica documents that, the use of credit cards originated in the United States during the 1920s, when individual firms, such as oil companies and hotel chains, began issuing them to customers.

Also, in the 1920’s, stylish stores in the United States issued them to their favorite customers.

So at that time they were highly localized in acceptance. So if you lived in Los Angeles you
couldn’t use your credit card in Chicago.

But credit cards gained nationwide usage after the likes of Henry Ford gave the world mass produced automobiles. The ability to travel across America had the unintended consequence of popularizing the credit card usage.

The 1950’s saw the founding of the Diners Club, which now is one of the biggest credit card companies worldwide.

Its founder, Mr. Frank McNamara probably was surprised the way his start up turned out to be.

The card was first intended to enable Diners customers to have their meals without paying for them, and Diners club would foot the bill. The customers then would repay Diners Club.

In 1951, Bank of America, encouraged by Diners success, started a card that is now called VISA. And other California banks started their card which later became MasterCard. The American Express made its debut in 1958.

At that time, the banks realized that the card business was a mass market business, and they later began mailing anyone with address (some of them dead) offering the new found craze.

Move on, Credit Cards

Banks and other entities with interest on credit cards often like waxing lyrical on the supposed many and manifold benefits the cards bring to the holder. And they have not been unsuccessful.

The major credit card holders (Visa, MasterCard and American Express) handle transactions of over US $ 6 trillion each year, according to The Economist magazine, and more than a third of American adults hold at least one credit card.

But now it may be the time to move on from the cards. Online payment systems are beginning to catch on. And the mobile phones operators are also giving the payment market a long and hard look (Safaricom, a mobile operator in East Africa, already allows
subscribers to send money to third parties by using a SMS).

As for online payments, a Silicon Valley firm, PayPal, has become an undisputed leader of online payments, and currently boasts of over 150 million accounts worldwide.

Other players who are fast catching on include Google’s Checkout and MoneyBookers.

But credit card companies have clout and won’t give up without a fight. Many online transactions using some of the modes mentioned above will still require you to “verify” the payment, preferably using your credit card information.

And online payments are not without their risks, and many people have lost their money by entering their financial information onto some phony websites masquerading as the real thing. But as technology changes, credit card’s edge on convenience will look more and more beatable.

Loans for food

Imagine going to the bank to apply for a loan, and you state that the purpose of the loan is to buy supper.

Unfazed, the banker very courteously tells you, “That’s fine, just sign the form. And by the way, you can take an additional amount for the new Anheuser-Busch beer which I am sure you and your friends will enjoy.”

The banker then whispers to you, “eeh, I know I am not supposed to tell you this, but you will be charged 20 percent annually and 30 percent for late payments.” “That is just great”, you say, and then take the money and walk out.

Sounds absurd, yet that is what actually happens every time one uses a credit card to buy household goods.

Experts say that if you don’t have the money to buy your basic essentials, you won’t have it end-month.

Robin Holland of Equifax, a credit reference bureau, concurs. If you don’t have the money to pay for an item now, you probably won’t have it after the credit-card bill arrives, he tells Equifax Website (EFX – news – people).

One may then ask, for what purpose are the credit cards? For Credit cards are very convenient when used with maximum degree of circumspection.

Don’t use it for impulse buying, and before you enlist for one, be sure to check out the minimum payment credit-card calculator which will show you how much you will end up paying if you pay only the minimum amount every month.

How to choose a credit card

Credit cards have become a part of life for most people living in the western countries. It’s becoming increasingly impossible to avoid them, especially for business men. So if it is the first time you are seeking to enter into the world of plastic money, here are some of the basic things you should look out for.

* First, compare the interest chargeable for all the credit cards for which you are eligible. While the rate may not remain fixed indefinitely, it’s always advisable for first timers to go for the one charging lower rates.

* Read the fine print, especially on the other charges that may be charged on you, like late-payment fees, annual fees, and whether there is a grace period which is normally given before the finance charges kick in.

* Decide what limit is appropriate for a person of your income. Also the fewer credit cards you have, the better placed you are to track your spending.

* Compare the services and other features such as the cash back incentives, or warranties, rebates and the like.

* Check whether the card is widely accepted to enable you to pay for your needs.

You will do yourself a favor by familiarizing yourself with the following terms:

* Annual Percentage Rate. This is the measure of the yearly cost of credit.

* Finance Charges. These are the total charges involving the transaction. This is the period the issuer gives you before he starts charging you interest on new purchases. Note that not all credit cards have a grace period.

How does the credit card work

If a caveman came back and made his way to a store offering Point of Sale (PoS) payment mode, he would be baffled by the ease at which Homo sapiens do their own version of hunting.

In truth, the simple act of swapping a small card into a terminal to effect a transaction would bewilder the uninitiated, and not necessary the early man.

What happens?

How the payment is finally processed?

These are just some of the questions that even some card holders don’t bother to ask, either to themselves or anyone (it is a possibility that some store workers don’t fully understand it as well), so you are not alone.

Here are some quick hints.

Every time one uses a credit card to purchase something, several industry players offering different services then come forward to complete the transaction.

Once the card is swiped across a PoS terminal, the terminal electronically reads the cards holder information and then through a phone line, it asks for an authorization to complete the transaction from the processing network which is responsible for translating the information given at the PoS sale point.

The data is then sent to the issuing bank to check whether the account is valid and that the transaction is within the allowed credit limits.

The network is then triggered to send an approval code to the PoS terminal. The details are then saved at the PoS which are then sent to the processing bank at the end of the day which then pays funds into the merchant’s account.

Credit cards, a necessary evil

Whether its hype, or banks ubiquitous marketing methods or actual need, it now seems unavoidable to live without a credit card. And now they are relatively easy to get.

If you have a pay-slip, you can always get one. There are even others designed for the subprime markets, for people with NINJA status (No income, no job no assets).

It’s hard to get a hotel booking (in some hotels, at least) if you are card-less. The many internet firms selling merchandise online will require you to pay using a credit card.

The reality is that the cards are not for everyone, and those with less than rosy credit card history will find that it is actually hard to acquire one, and with the interest charged on some of them almost equivalent to the price of an arm and a leg, many exasperated credit card customers are opting out.

The trick that many who are annoyed by their credit cards don’t seem to appreciate is to stay below the limits of your credit.

Unless someone is confronted with an emergency and has to incur some expense, there is no reason for one to flush out the card at the slightest excuse. The best thing is to use them as they are real cash.

Self-esteem is said to influence how one behaves in public, and if by flushing out a plastic makes one feel good in public places, the person may find out that that self-esteem is under attack when the bills come.

Credit Cards Do’s and Don’ts

There is a lot of truth in the advice that credit cards are not a substitute for not having money. Every time you use a credit card this should be the theme replaying in your mind. And you would do good to remember the following too.


* Always plan for the purchases that you need and those that you want. You need the essentials, and you want everything else. The ability of making a distinction might help you plan wisely.

* If caught up in financial difficulties, it’s always good to talk to the issuer who might re-schedule your payments. If you simply default, that only helps to build up an unfavorable credit history and you might find yourself being denied credit next time.

* Unless it is an emergency, staying within your credit limits will help you a great deal. If you must spend over the limit, ensure you are within the manageable levels, say within 30 percent.

* And if your mails are flushed with more favorite deals than you currently are enjoying, you may approach your issuer for a better deal. They want to retain you as their customer, so they will listen.


* Do not use your credit card to make house hold purchases. It’s expensive in the long run

* Do not just pay the minimal amount. You will end up paying exorbitant interest. The quicker you clear the debt the better.

* Do not use the credit card to purchase things you can’t afford.

Becareful with your Credit Cards

Be warned, Does the credit card work for you or do you work for your credit card?

Most people’s answer to that question will depend on how they treat their “old plastic” as credit cards are known.

For many with burned fingers will tell you they didn’t realize that things had gotten so bad until very late, because most credit card offers try much to sound like they are actually running a charity. Well, they aren’t.

And this is not a hate campaign against credit cards. Surely they have their benefits – in America if you want to rent a car, you got to have a (major) credit card.

But, consider this scenario: You receive an offer in your mail that sounds good, maybe it’s a new generation TV or a fridge. But it costs $2000. Oh, but you have a credit card with a $5000 limit, and you immediately purchase your merchandise.

Typically, here is how your repayment schedule will play out. Most credit cards charge a minimum of total balance (usually 2 percent) of the total per month.

Assuming the interest rate is 18 percent and you choose to repay the minimum amount of $40, $30 of that will go towards interest and only 10 percent towards the principle.

As a result, you will take 30 years to repay and end up paying over $5000 interest.

Sounds scary? It doesn’t have to be. The moral of the illustration is: Use the credit card the same way porcupines make love; very, very carefully.

Advantages of a credit card

The Chinese are credited with coming up with numerous inventions including gunpowder, umbrellas, chopsticks, paper and paper money.

Lamentably, (from Chinese point of view) the honors of coming up with plastic money went with early American capitalists.

From the time John Biggins, the inventor of a first bank issued card, had his first eureka moment in 1946, credit cards have evolved to become one of the most versatile ways of paying, and this is why. Once issued with one, the need to carry around unsafe, dirty and
bulky cash is significantly diminished.

I say diminished because some small scale merchants (who perhaps are scared of technology) will still insist on being paid in cash. Further, credit cards enables you to build up a credit history, but only if you always pay on time.

In some countries such as UK, if you buy goods using a credit card and the goods turn out to be faulty, they are usually insured for a period of time, say two months, and you can be indemnified even for total loss.

Credit cards are safe, and even if gun-totting miscreants help themselves to your wallet, you can make hit back by simply calling the credit card company and canceling the stolen card.

Another thing going for credit cards is that you can keep track of your transactions, and it’s thus easy to keep track of your expenditure. I could go on and on, and whatever the doomsday prophets say, plastic money is here to stay.