Every US citizen at least has one plastic card and mostly it is a credit card, although some might carry debit or payroll cards. Cards issued by gas and telephone companies and big department stores like Sears could also abound. This attests to the fact that a big number of us know what credit cards are because we are using them in our every day living.
They have availed an unprecedented money handling capability since their introduction early in 1950 when Dinner’s clubs introduced the charge card, even if the use of cards in fact started back in the 1920s to buy gas when the number of automobiles picked-up. Around 1938 several companies were accepting each other’s card and they have evolved to where they are today.
The card we know as Visa started out as BankAmericard and came into existence around 1958 and the issuer was Bank of America. The other popular card MasterCard introduced in 1966, its original name was MasterCharge. Companies like Visa and MasterCard do not offer their own card, but are transaction-processing companies.
But there are banks, department stores, gas and telephone companies, and companies known as affinities; all of them can issue their own card that serve different purposes with their company logo and the processing companies logo on the card, and are acceptable world wide. There are also others known as travel or entertainment cards like American Express and Dinner’s Club that issue their own card.
When it comes to credit cards we all know that they avail an easy and an unsecured credit as long the minimum requirements like full time employment and having a good credit history are in place. The number of secondary card issuers had gone out through the roof as a single individual with a medium yearly income could end up obtaining up to ten cards and juggle through them at one’s best ability.
Taking advantage of this credit availability without upsetting one’s financial health is a key issue, because these tempting and easy to obtain loans had a history of sending many people’s personal finance into a tailspin. The reason why it is so is, after obtaining the loan it is up to the cardholder how to use the fund that is available, and that seems to be difficult for most people because of the consumer world we are living in.
Availing all the things needed is not possible for most middle income individuals and families, which means there are needs that will have priority, and there are needs that will have to remain on the backburner, and not only that shunning away from some unnecessary things is a must. This process is possible in most cases when the means is not there, but when the means is available readily, the effort required to choose needs upping in order to avoid a financial disaster down the road.
The lenders are not very much concerned about what the borrowers will do with the money as long as there is some means of making them pay back is in place. At the same time, they are fully aware that they can walk away without paying. Recently the high rate of bankrupts who could take advantage of the available loopholes and walk away unscathed had risen to an unacceptable proportion, and it has necessitated the intervening of the government to come up with a legislation by the persistent lobbying of the card issuers.
According to the new law every borrower has to prove that he or she cannot pay the loan if they want to default. Otherwise, as long as they can afford to pay up to $100 a month, the borrowers will have to make payments even if it could take five to six years to pay back the owed money, and instead of going directly to Chapter 7 bankruptcy that will write off all the debt, they will languish inside Chapter 13 until they finished paying up.
Anyone can fall into this crack unless people know how to use the cards wisely and smartly, which could make a big difference in anyone’s life as far as using them properly is concerned. Paying back the money used within the first 25 days of the month allows borrowers to pay no interest and those who have a good credit history, the amount of interest they have to pay is very low comparitively.
At the same time depending on one’s need and ability to pay, those who can pay back the money used before it is due could still pay less if they apply for loans that charge a one time annual fee, which is cheap, and it is set regardless of the credit limit. Of course, those who cannot pay the money they borrowed before it is due date will be better off if they sign with a program that charges interest rate, because they do not have to pay twice, as they have to pay interest on any outstanding balance even if they pay an annual fee.
Through all this controversy the card issuers could make a handsome profit, because, first of all, merchants will have to pay at least two to three percent of the transaction fee for accepting credit cards, and this part is what is known as an interchange fee. The issuing banks, the processing networks like Visa or MasterCard, and the card merchants divided the money.
The other source is, of course, interest on the outstanding balance paid by those known as “revolvers” because they do not pay the money they borrowed at the grace period. The “transactors” who use the money and put it back before the grace period is over do not pay interest. The interest vary, it is low for those who meet the requirements, and have a good credit history, but those who encounter problems to make good on their payments could end up paying up to 29 percent, and both are major sources of income for the issuing banks.
There are also fees on payments made past the grace period; these are the required minimum monthly payments. In addition, when the credit limit exceeds even if it is a mistake, an insufficient fee is applicable. Also when there is a transaction that involves foreign currency there is another charge that is around three percent.
More or less, the rate of interest is the same across the board. But the minute the borrowers fail to make good with their payments the rate could get a hike and that is a nightmare to avoid, as it stops only when after paying back the money or when the account is back to a manageable state, and ending up in court is part of the recipe that could trigger the losing of valuable assets like houses and cars.
It also has one shortcoming, which is; it is vulnerable to fraud. Merchandise bought on line could end up being a parody good, or it might even be undelivered. However, there is a mechanism built into the arrangement where when this happens, reporting the incidence to the card issuing bank on time will enable the customer to get a refund, and the dispute could continue and will take sometime to settle. A record on such merchants could stay in file and it would reflect on their records for those who care to examine it.
There are also frauds that result due to stolen card information, as obtaining it using different methods is possible, and one of them is either copying information online or offline by retaining a receipt or keeping a record of a transaction. Or hackers could access information from companies’ database and steal their customer’s credit card information, or in some cases insiders will end up selling sensitive information for outsiders causing a lot of damage.
In order to prevent these and other kind of identity theft a four-figure pin known only by the cardholder is available even if it is not very effective for online use, but it is effective on ATMs. Online users have CVV2 number on the back of the card and they have to use it to make purchase online or using telephone service, even if it could fall into the wrong hand. However, reporting a fraudulent transaction on time will protect the cardholder and that requires vigilance on the part of the cardholder.
Smart cards have also come into existence, which are key to make fraud difficult, and will be in a much wider use in the near future. They are different from the traditional magnetic-stripe cards because they have a microprocessor built into them and work through cryptography, secret codes, that could hold all sort of information, and all the information and the processing procedure encrypted on them, they are key to avoid fraud like phishing, making them a much safer choice.
One other simple method that will eliminate the fear of using credit cards for every day usage is using debit cards instead, as it is easy to monitor money that is in a debit card account according to the need of individuals, as there is no need to leave a big amount in the account, and this will definitely save the use of credit cards for everyday shopping.
In fact, it is advisable for some to use only debit cards, and avoid taking loans using credit cards, because the debit card will avail all the convenience of the credit cards, but the money needs depositing first, and it is much preferable if the source of the money is not a loan. If people spend their own earned money they do not spend what they do not have, a known impulse spending credit cards are encouraging.
While using debit cards making sure that they are the Visa and MasterCard brand, with the logo on the front of the card, preferably with CVV2 number to use them for online or telephone purchase is important, because there are a big number of other debit cards that do not have the same wide acceptance among businesses, nonetheless almost all of them are good for ATMs if they have pins.