Credit card

DR. YAMINI SHARMA

D.M.S.
What is Credit Card
A credit card is a payment card
issued to users as a system of
payment. It allows the cardholder to
pay for goods and services based on
the holder's promise to pay for them.
What is Credit Card
The issuer of the card creates a
revolving account and grants a line
of credit to the consumer (or the
user) from which the user can
borrow money for payment to a
merchant or as a cash advance to
the user.
Credit Cards: A Brief History

The idea of lending money through a card goes
as far back as the 1800s. According to the 2005
FDIC Banking Review's paper called "Overview
of Recent Developments in the Credit Card
Industry", merchants and financial intermediaries
provided credit for agricultural and durable
goods. The cards soon began to spread to other
industries. Hotels and department stores
presented their most valued customers with
paper identification cards. The cards were mostly
used at that one location; however, some local
merchants would accept the competitors' card.


Credit Cards: A Brief History

It wasn't until the late 1950s that Bank of
America (NYSE:BAC) introduced the Bank
Americard, the first general purpose credit card.
The bank created a separate credit card
operation entity that in the mid 1970s became
known as VISA (NYSE:V). In 1966, competing
banks spawned rival cards as a result of Bank of
America's success. This network of bank owners
later created an association that came to be
known as MasterCard (NYSE:MA).


Credit Cards: A Brief History

Throughout the years, the credit card industry
has been the subject of much debate. On the
one hand, many critics have blamed credit card
issuers' loose restrictions for high fees and rates,
which are often hidden in complex credit
agreements. The deregulation of the industry
that occurred in 1970s and 1980s is often
blamed for this. However, in 2009, U.S.
President Barack Obama signed a new bill into
law to curb the most controversial credit card
practices, including interest rate hikes, penalties
and marketing to college students.

Charge Card V.S. Credit
Card

Charge Card V.S. Credit
Card
Charge card are not for everyone
instead of anybody can hold credit card
easily.
Charge card issuer charge yearly fees
for the card but in case of credit card
holder is not bound to pay any fee for
card.
A Charge Card requires the balance to
be paid in full each month. In contrast,
credit cards allow the consumers a
continuing balance of debt, subject to
interest being charged.
Credit Card; Debit Card;
ATM Card

Credit Card
Credit card is a facility under which one can
make purchases on credit(Payment is to
be made 1-1.5 months of purchase) after
getting bill from the credit card company. If
bill is paid on due date, there is no interest
on dues.
Debit Card
A Debit Card (also known as a bank card or check
card) is a plastic payment card that provides the
cardholder electronic access to his or her bank
account(s) at a financial institution. Some cards
have a stored value with which a payment is
made, while most relay a message to the
cardholder's bank to withdraw funds from a
payee's designated bank account. The card,
where accepted, can be used instead of cash
when making purchases.
ATM Card
An ATM card
(also known as a bank card, client card,
key card, or cash card) is a payment
card provided by a financial institution
to its customers which enables the
customer to use an automated teller
machine (ATM) for transactions such
as: deposits, cash withdrawals,
obtaining account information, and
other types of banking transactions,
often through interbank networks.

How credit cards work
Credit cards are issued by a
credit card issuer, such as a
bank or credit union, after an
account has been approved by
the credit provider, after which
cardholders can use it to make
purchases at merchants
accepting that card. Merchants
often advertise which cards they
accept by displaying acceptance
marks generally derived from
logos or may communicate this
orally.
How credit cards work

Interest charges
Credit card issuers usually waive
interest charges if the balance is
paid in full each month, but typically
will charge full interest on the entire
outstanding balance from the date of
each purchase if the total balance is
not paid.
Interest charges
For example, if a user had a 1,00,000
transaction and repaid it in full within this
grace period, there would be no interest
charged. If, however, even 1000 of the
total amount remained unpaid, interest
would be charged on the 1,00,000 from
the date of purchase until the payment is
received. The precise manner in which
interest is charged is usually detailed in a
cardholder agreement which may be
summarized on the back of the monthly
statement
Types of Credit Cards
Credit cards now are of various types with
different fees, interest rates and rewarding
programs. Different types of credit cards
available by banks and other
companies/organizations are briefly described
below.
Standard Credit Card
Premium Credit Card
Secured Credit Card
Charge Credit Card
Specialty Credit Card
Prepaid Credit Card
Limited Purpose Credit Card

Standard Credit Card:
This is the most commonly
used. One is allowed to use
money up to a certain limit.
The account holder has to
top up the amount once the
level of the balance goes
down. An outstanding
balance gets a penalty
charge.



Premium Credit Card
This has a much higher bank
account and fees. Incentives are
offered in this over and above that in
a standard card. Credit card holders
are offered travel incentives, reward
points, cask back and other rewards
on the use of this card. This is also
called the Reward Credit Card.
Platinum and Gold, MasterCard and
Visa card fall into this category.


Secured Credit Card
People without credit history or
with tarnished credit can
avail this card. A security
deposit is required
amounting to the same as
the credit limit. Revolving
balance is required
according to the 'buying and
selling' done.


Limited Purpose Credit
Card
There is limitation to its use
and is to be used only for
particular applications. This
is used for establishing small
credits such as gas credits
and credit at departmental
stores. Minimal charges are
levied.

Charge Credit Card
This requires the card holder to make
full payment of the balance every
month and therefore there is no limit
to credit. Because of the spending
flexibility, the card holder is expected
to have a higher income level and
high credit score. Penalty is incurred
if full payment of the balance is not
done in time.

Specialty Credit Card
Specialty Credit Card is used for
business purposes enabling
businessmen to keep their
businesses transactions separately
in a convenient way. Charge cards
and standard cards are available for
this. Also, students enrolled in an
accredited 4-year college/university
course can avail this benefit.

Prepaid Credit Card
Here, money is loaded by the
card holder on to the card. It
is like a debit card except
that it is not tied up with a
bank account.

Credit Cards: Pros
You can use them practically
everywhere, especially overseas.
They can boost your purchasing
power because they can be used
to buy goods and services over
the phone, through the mail and
online.
They provide financial backup in
the event of an emergency, such
as an unexpected healthcare cost,
job loss or auto repair.

Credit Cards: Pros
They allow you to purchase
items and pay them off in
monthly installments. They offer
discounts at stores and rewards.
For instance, when you make
purchases using the credit card
you can collect points; these
points accumulate and can be
used to get free items, such as
airline tickets.

Credit Cards: Pros
Some cards may offer cash back as
an incentive to use the card.
They can help build your credit
history.
They keep a record of your
expenses, helping you to monitor
your financial activities.
Credit cards allow you the right to
dispute billing errors and defective
merchandise.
They allow you withhold payments.

Credit Cards: Cons
Credit cards can have their
disadvantages, though, especially
when they're used in an unwise
manner.
Some consumers feel compelled to
spend more money than they have.
Consumers may continuously roll
over a balance for several months.
When you default on credit card
payments, you are charged with late
fees and interest, increasing your
debt load.

Credit Cards: Cons
Carrying a large amount of
credit cards also isn't too
favorable in the eyes of lenders.
Acquiring too much credit card
debt can ruin your credit score.
Studies have indicated credit
card debt as a significant factor
in consumer bankruptcies.
Credit card fraud is a possibility.

Avoiding Credit Card
Pitfalls
1.Keep track of your purchases by
closely reviewing your monthly
statements.
2. Have a budget and avoid
overspending.
3. Make an effort to pay off credit card
balances at the end of the month.
4. Make purchases with reliable
companies and take extra precautions
when making purchases online.
5. Report stolen cards immediately to
the credit card company.
Use safely and carefully