Credit Cards Reviews and Ratings

Since the 1920s, different types of credit cards have emerged. In addition, related types of cards have also appeared on the consumer scene: the debit card, as well as the ATM card and the smart card, and the travel card and charge card.

CREDIT CARDS

A credit card is a pocket size, plastic card that allows the holder to make a purchase on a credit account that will be repaid at some time in the future. Repayment may be in a single amount or in a series of amounts. At a minimum, the credit card will include identification of the user by name, account number, and signature.

The earliest issuance of credit cards in the United States was by gasoline companies and retail stores. Thus, it was quite common in the first half of the twentieth century to carry a credit card from Esso, Sears, and/or a local department store. These early cards were issued by the private company itself based on the credit policy of that company. Many of the accounts were expected to be paid in the month following purchase. Others were revolving charge accounts in which partial payment was expected every month, with a charge for interest on amounts not paid promptly.

If the balances of the credit accounts were not paid, the issuing firm took the loss. Thus, deciding to issue a credit card was a thoughtful process on the part of the firm. Often, the three Cs of credit were applied to a credit applicant: character, capacity, and capital. Character referred to the record of the applicant in paying previous accounts—his or her credit history. Capacity meant the earnings potential (salary) of the applicant. Capital referred to the net assets (assets minus liabilities) of the person. Obtaining a credit card was far from an automatic process.

Major changes in the nature and types of credit cards occurred in the 1950s. Two types of credit cards emerged in that decade: the charge card and the bank credit card.

The bank credit card expanded the idea of a credit card company to a much broader usage—virtually every merchant and service provider worldwide. The 1959 BankAmericard from the Bank of America in California became the VISA card. The 1970s saw the birth of Master Charge, which became MasterCard. These cards are issued by banks, so one applies to a bank for the credit card. A preset credit limit is assigned to the card user. After an item is charged at a firm, the firm receives payment from the bank. The bank charges a fee to the firm, pays the firm the net amount, and then collects from the consumer. The consumer usually pays an annual fee to the bank and is charged interest on the unpaid balance at the end of each month. Credit cards may also be used to make a cash advance from the bank. However, it should be remembered that interest rates on cash advances using a credit card can be much higher than the rates for credit card purchases. Thus, the cash advance feature should be used wisely.

While at one time it was difficult to earn credit, the process is far easier at the present time. Banks compete for customers for their credit cards and often solicit college students with limited capital and offer them credit cards. Telemarketing of credit cards is frequent. Low credit limits are relatively easy to obtain. Demonstrating a solid payment record and growth in earnings then leads to higher limits.

Managing one’s credit is important to the consumer. It is critical never to get into a position in which one has so many credit cards and so many high balances that the credit bills never get paid off. For example, if you have a bank credit card with a balance of $1,000 and an interest rate of 18 percent a year or 0.083 percent a month (18 percent divided by twelve months), the interest for the current month will be $15 ($1,000 × .015). If the payment made on the account this month is only $25, then the first $15 is for interest; the remaining $10 ($25–$15) reduces the principal of $1,000 to $990 for the next month. In other words, more has been paid for interest than for what was purchased; the situation in the following month will change very little. At this rate of payment, it could be several years before the balance is reduced to zero. In the meantime, if the card has been used for more purchases, the cycle of remaining in debt continues. Credit card management is critical to a consumer. In fact, one who has difficulty in dealing with credit cards might be better off with debit cards.

DEBIT CARDS

A debit card is also issued by a bank and looks like a credit card, but it works very differently. When one uses a debit card, the amount spent is deducted immediately from the user’s bank account. It is as if one is paying by check without having to write a check. There will be no unpaid future bills, for the payment is made at the time of the expenditure. For example, many people today purchase groceries with the debit card by running it through the card reader at the grocery store check out counter. In addition, people often get extra cash while paying for the groceries with that debit card.

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