What are Credit Cards?
Credit cards are a type plastic cards that are issued to an individual by a financial institution that extends a line of credit to this individual. These cards have a magnetic strip on them that stores information on the account of the cardholder, such as balance and credit rating. When making a purchase the card will be 'swiped' through a credit card machine for approval for the transaction.
The card also has a card number and details on it that can be used in online and telephone transactions. The card number and name on the card identifies the holder to the credit card company and when information is verified then a purchase is given an approval code.
Credit card characteristics
A credit card is assigned a spending limit for the holder. This is the so called credit limit of the card. The cardholder can then spend up to that limit on the card. The credit card company will issue a statement to the cardholder every month, which details the transactions of that specific month, the balance on the card and the minimum payment that is due.
The cardholder can then either pay the full balance off in one payment, which will negate them from accruing any interest charges or choose to pay at a later time. Credit cards offer the option for their holders to make a minimum payment instead, which then pays off the balance over time. Paying this way will mean that the credit card company will add a set interest charge to the account balance.
Why would you need credit cards?
Credit cards allow you to purchase products as well as services whenever you want, without the pressing need for cash, by borrowing from a credit card company. You then repay this amount of money by making periodic payments towards the same company. Of course, you don't have to pay the full amount in one go, and that means that credit cards can prove themselves to be a reliable and attractive way of borrowing money.