A credit card is a plastic payment card issued by banks and other financial institutions to consumers to enable the customer to pay to a retailer for products and services on a monthly basis or on an as-needed basis. It is usually issued to people with good credit records, stable jobs, and to people who live in a specified area. It may also be pre-approved or secured, depending upon the bank’s policies and credit worthiness of the consumer. Some people who are not qualified to obtain a traditional card can apply for an unsecured credit card. In most cases, these people need not prove their income.
Credit cards may be used to issue one-time or monthly bills for services like gas, groceries, and entertainment. However, the credit card company reserves the right to add extra fees or charges whenever it sees fit. Credit cards may have interest rates and repayment schemes that are lower compared to the interest rates applied for bank accounts. Most credit cards may also have travel rewards programs and cash back and air miles programs.
Credit cards are convenient and hassle-free ways to make payments and purchase items without relying on the traditional money transfer systems such as cash, wire transfers, and credit cards themselves. They are ideal for travelers. The convenience and instant transactions are just some of the reasons why they are very popular today. There are certain disadvantages though.
First, credit cards carry with them a certain amount of risk or liability to both the issuer and the consumer. For the consumer, this means higher interest rates. If the consumer fails to repay the credit card bill in the specified amount of time, the issuer will then have to come up with the whole amount in cash. Similarly, in case the consumer fails to return the money to the issuer in the specified period of time, the said issuer has to give the consumer a legal notice forbidding him to transact business with other companies or financial institutions until the payment is received.
Credit card issuers have made certain provisions to protect cardholders. Bankruptcy laws have been amended so that consumers can at least be compensated for the balance of their debts in certain cases. These amendments were brought about by the U.S. Congress. In other words, credit card companies now face some form of accountability when it comes to their past practices regarding interest rates and penalty charges. However, these laws still have limitations like everyone else. It is still important for the consumer to exercise caution while using credit cards so that he does not become vulnerable in the eyes of the law.
Credit card companies have introduced some additional safeguard measures to prevent abuse of the privilege. For example, they now have a grace period before charging off a balance. A grace period gives the consumer enough time to settle the balance without paying the full amount. This is just another provision that helps cardholders avoid the pitfall of paying only the minimum payment. Knowing these types of consumer protections can be beneficial to anyone who is struggling to make ends meet as well as those who already owe money.