A credit card is a small plastic card issued to the consumer by a financial institution such as a bank or credit union. The card issuer creates a revolving account with a line of credit to the consumer. The cardholders can purchase goods and services or receive a cash advance, until trb handbook they have reached their predetermined credit limit. The merchant who accepts credit card payments receives the money from the bank issuing the card. The cardholder eventually repays the bank through regular monthly payments. If the entire balance is not paid in full, the issuer usually charges interest on the unpaid portion.
Credit cards can be an extremely valuable tool if used correctly. However, there are also risks for those who lack self-discipline for the debt they cannot repay. Although when used responsibly and with the correct intentions, the card can provide significant benefits. Here are some of the attributes of owning a credit card:
The credit card is a flexible payment tool accepted at over 30 million locations worldwide as it has become a good alternative for cash. On many occasions, situations arise where you need more funds than what are immediately available. Emergencies such as home or car repairs, medical expenses, travel for a family crisis, are attainable instantly with a card. Such credit spending should be done with a short-term intention with timely payments to avoid accumulating debt.
Establish and Boost Credit History
Paying your bills in full and on time indicates responsibility which helps to boost credit rating. A good credit rating also helps in many other situations, such as, obtaining a loan with a low-interest rate. More than likely, your card company will also approve a higher credit limit.
Borrowing Interest Free
Credit cards allow you to use the bank’s money interest free within a grace period. Therefore, payment for purchases on the card are due at the end of the pre-determined period. Paying your balance in full each month enables you to receive an interest-free loan month after month.
In order to entice new customers, card issuers frequently create 0% interest rate promotional offers for credit card purchases and cash advances. The only limitation is for the credit loan to be fully paid back at the end of set time period. If used wisely, one can use the credit card 0% interest loan to pay off higher interest rate debt. As long as you have the self-discipline in controlling spending, this type of financing can be a valuable tool for money management and budgeting.
As the credit card issuers provide detailed monthly statements on purchases, they allow you to keep track of your spending with ease. For business owners, the summaries are a valuable tool for tax return preparation, as they provide information for allowable tax deductions.
Rewards and Benefits Many companies offer rewards and cardholder benefits to their customers. Loyalty programs have been designed to encourage cardholders to use one specific card. As the card is used, the cardholder accumulates airline miles, hotel chain points, cash back points etc. that a cardholder can redeem for products or services. For those who use their cards frequently, the rewards can be quite substantial.
In addition to loyalty program rewards, cardholders also reap benefits that include complimentary car rental insurance, travel insurance or overseas health insurance.
For mail-order purchases that are not received, or turned out to be defective, the charge can be disputed with the credit card company. The burden of proof lies with the sender; therefore, the consumer has limited financial liability. Such consumer protection provided by the credit card company is not available with most debit cards or when paying cash.