It is a card issued by the banks or other financing companies that allows its user to buy things on credit up to a certain limit or allowed limit. It is issued on the name of a person who is the cardholder. The cardholder uses the card for basic transactions that appear on the credit card bill, the bank pays to the seller and later when the cardholder receives the bill he pays to the bank. Interest is charged on the amount of purchase normally to avoid the interest amount cardholder should pay the bill every month before the due date.
However, credit cards have high-interest rates and credit card balance and payment history can affect the credit score of an individual. The bank decides the credit limit after checking the credit score of the individual. Interest is charged if the payable amount exceeds the monthly due date.
Types of credit cards
Bank’s credit cards
The majority of credit cards include Visa, MasterCard, UniPay, Discover and American Express which are issued by banks, credit unions, and other financial institutions. Credit card companies mostly attract customers by offering them incentives for example airline miles, hotel room rental discounts, gift certificates to major retailers and cashback on purchases.
Branded versions of credit cards
To make customer loyalty many big retail chains issue branded versions of major credit cards with the name of the store embellished on the front of the cards. However, it is very easy for consumers to get approval for a branded credit card (store card) than for a major credit card. Branded cards may only be used for shopping from the issuing retailers which may offer perks to cardholders such as special discounts, promotions or special sales.
Secured credit cards
In this type of credit card, the cardholder gets the card or secures the card with a security deposit as a kind of guarantee for repayments of credit card bill that’s why this type of card is called secured credit cards. The credit limit offered by the bank on this card is equal to the value of security deposit which is refunded after cardholder demonstrates repeated and responsible card usage. This credit card is also known as prepaid or semi secured credit cards these cards are suitable for the individuals who have a poor credit history or applying for the first time. This card helps increase the credit score if the payments are made on time.
Annual fee and the interest rates on credit cards
The annual fee on a credit card is different from the rate of interest on the credit card. The annual fee is charged only once a year and the cardholder cannot avoid the fee it is normally charged in the month of its issuance. On the other hand interest rate is different cardholders can avoid the interest charged on the amount used by making early monthly payments. The interest rate may be charged high by the bank if payments are delayed by the cardholder or late payment fee may be charged.