Credit Cards

Credit cards allow cardholders to access a line of credit at will for purchases and cash advances. The limit on the line of credit is established by the credit grantor and is based on a number of factors that determine the cardholder’s creditworthiness, or ability to pay back the loan.

The main credit card issuers are Visa, MasterCard and Amex.

Credit cards are the actual payment instrument used by a cardholder in a retail or online establishment to purchase goods or services that allow them the option to pay in full at a later date, usually a maximum of 59 days credit before any interest payments are due.

For providing credit, card issuing banks and institutions are paid a fee, in the form of interest which a cardholder will pay in addition to the principle balance owed for the original purchase.

There are different types of credit cards available.

• A traditional credit card is one where purchases can be made, and then a payment is generally due on a set day every month. You can choose to pay the balance in full at the end of the billing cycle, or “revolve” the balance by paying a minimum payment and allowing the bank to charge interest on the remaining balance. This type of card that most consumers carry.
• A charge card is a card that may or may not have a limit, but payment in full in required at the end of each month. There is generally a fee charged to carry this card, since revenue is lost by not allowing cardholders to revolve their balance.
• Then there is a purchasing card. This card is a hybrid between a charge card and a credit card. The terms set up by the card issuing bank will allow the balance to be revolved, but not indefinitely. At a specified time, card aging card balances must be paid in full to avoid having the card restricted. These cards are usually used by businesses to monitor company paid charges by employees.

Having a credit card can benefit a cardholder in several ways:

• They allow purchases, especially emergency or unplanned purchases, to be made without interrupting cash flow.
• They allow flexibility in making larger purchases, making it easier to pay for goods or services that may not have been otherwise attainable.
• They allow for ease in travelling by allowing a traveller to pre-arrange hotels, flights and restaurants.
• They mean you don’t have to carry large amounts of cash to make purchases.
• They protect your purchases against fraud, as large transactions are guaranteed by the card issuers like MasterCard, hence you can claim your money back if goods or services you have paid for on your card fail to turn up.

The main difference between UK and US credit cards is their use. All three types of cards are available in both countries; however, the UK prefers to utilize charge cards, paying off balances at the end of the month, while Americans tend to revolve lines of credit, amassing debt.

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