Credit Cards Introduction
Credit cards was invented in 1920's, but credit cards really gained popularity after World War II. In the 1950's, Bank of America was the first national bank to install a system of credit and the first credit cards came out on the market. In 1976 the BankAmericard was renamed to Visa Credit Card. In fact, in 1999, Americans already charged $1.2 trillion on this powerful plastic card.
Advantages When Using Credit Cards
Credit cards designed to allow a consumer to pay for a purchase through drawing credit from the card. Credit card can instantly access to more cash than you may have on hand. Credit card holder have the authorization to purchase goods or services up to a certain amount which called credit limit. When we purchase goods or services by using our credit card, the merchant was paid by the credit card company and we need to paid back the company at a later date. This type of payment process not involved any collateral, that is a reason why the company will charged a higher interest rate on the outstanding balance that haven't cleared. The higher risk involved with this kind of money lending, the higher interest rate will be charge to the credit card holder..
Unsecured Credit Cards
Credit card basically is one of the general type of unsecured loan. Unsecured credit card is essentially a pre-approved loan with higher interest rates if we compare the rate with normal bank loan. Unsecured credit card is generally issued to those who have a good credit history and able to repay the debt on time. Credit cards limits are determined on an individual basis and the limit may be raised or lowered based on the card holder pay back performance.
Credit card does give the holder an immediate credibility for services such as hotel reservations, car rentals and airline ticket reservations. If without paying by credit card, this type of service normally request their customer to guarantee their reservations with cash deposits or several forms of identification. Many credit card plans also include insurance coverage for theft or fraud . If a credit card is reported stolen and then used illegally, the cardholder would not be held responsible for unauthorized charges.
Disadvantages Of Credit Cards
Credit card holder will facing problem when the card holder accrues more debt than a regular monthly payment can cover. The issuing bank does allow credit card users to carry over balances every month , but significant interest rates may also accrue on those outstanding balances. Most credit cards determine your monthly balance based on the "average daily balance" method. The credit card company tracks your day to day spending, subtracting your charges and adding your payments. It will then multiple the average of your charges and payments by the interest rate.
Missing a scheduled payment can also prompt the bank to raise interest rates on a delinquent account. If a credit card holder can only afford to pay the minimal amount due every month, he or she will not be reducing the actual debt incurred. The minimal payments may only apply to the accrued interest. This is a financial spiral many credit card users may experience if they don't use proper spending restraint.
A credit card is not a requirement for successful living, but even those who only pay for goods or services with available cash often find a credit card to be a convenient form of identification and instant credibility. In order to avoid excessive credit card debt, the credit cards holder must decide if the goods or services are worth to the added expenses.