Credit Cards: Overview and Usage Tips

By: Robert Jonsonn

In today's fast-paced world, more and more people depend on credit and do not even bother setting a monthly budget. Why bother saving, they ask, when they have the luxury of a hassle-free alternative form of payment that makes buying anything, anytime, a breeze. Well, sure credit cards make shopping easier, but they certainly don't make it hassle-free.

Children often say that credit cards are a source of free money. It's charming, but we know better. For a tiny piece of plastic, the credit card sure wields a lot of power over most people in industrialized societies. It acts like a tiny bank loan in our pockets, and allows people to make impulse purchases without having the cash in hand. It makes buying a lot easier in the short term. Of course, the hard part involves paying back the "loan" before the interest begins compounding.

To obtain a credit card, you must first submit an application form that serves as an agreement between you, the credit card consumer, and the credit supplier. If you application is approved you will receive a credit card. The card enables you to make purchases or access cash, as if you are borrowing the money from the credit supplier. There is a pre-determined spending limit applied to your account, and the supplier may limit the amount you can spend on a monthly basis.

On the back of your credit card is a black strip that is encoded with secure information about the card and about you. During a transaction at a retail store, the machine at the cash register will read the information on the strip and communicate with the headquarters of the credit card supplier. Your payment status will determine whether the supplier will authorize the current transaction. There are millions of places that accept credit cards in person, and many more that accept cards by telephone or on the web. You can also use your card to withdraw cash from ATM machines that accept your particular card type.

There are seven main credit card organizations that operate in countries around the world. VISA, American Express, MasterCard, Citi, Diners Club, Discover and JCB. The most widely used and universally accepted cards are MasterCard and VISA. Some credit card suppliers will partner with particular retailers and organizations to issue credit cards on their behalf; for example, the HSBC VISA card.

Going to a traditional retail store and making a purchase will require you to "swipe" your card through the slider on the side of the small machine at the check out register. The store clerk will handle the rest. Buying goods on a web site means you will need to type in your credit card details on the site itself. Make sure the site you are visiting has a secure "lock" image in the bottom right corner of your browser. This indicates the site is a secure place to purchase. You will get a receipt for this purchase from the web site, and also a mailed bill from your credit card supplier with your monthly statement. You can choose to pay your bill off in full, taking your balance down to zero, and you will not be charged interest.

Here's where credit cards can be difficult. If you opt for making a partial payment of simply meeting your minimum obligation, you will be charged interest. If you have made numerous purchases or used credit to buy expensive items, the interest can add up very quickly. This is how the credit card suppliers make their money. Late fees can also be charged, so be sure to make your payment on time.

Credit cards are convenient and useful for today's shopping environment. However, the ease of use can seem pretty small compared to the huge pain of paying off debts owed on credit cards. Interest rates are usually very high. So try to pay your balance off in full every month. You will gain the convenience, without the pain. There is nothing wrong with using cash for most purchases, either, so don't feel that a credit card is mandatory.

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Author Robert Jonsonn contributes to several web sites, on health products and consumer protection themes.
This article is available as a unique content article with free reprint rights.

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