Credit cards are best to use when you know all about them. Getting them is easy , using them even easier , convenience offered by the is unmatchable , but when it comes to the interest rates on them , you need to be careful.
If you have noticed carefully, you may see someone standing in queue at a store shuffling with 8-10 credit cards. Though, consumers with so many cards are few, almost all U.S. citizens have 2 or 3 or at least on surely. Apart from being an important source of identity, Credit Cards used wisely gives you the convenience of making purchases on credit and pay almost after a month, before interest charges become due. Car Rentals almost always require a major credit card.
In theory, it sounds good, but practically many consumers carry an outstanding every month leading to payment of finance charges which may go up to almost 23%. The urge for impulse purchases of things one can ill afford is sometimes hard to resist. Statistically, the charges on general purpose credit cards in 1999 for American consumers were about $1.2 trillion.
A lot of people take credit cards just like that. They do not have the simplest of the information regarding these cards nor they are able to calculate the interest rates charged from them. Credit card companies are well aware of this fact and they tend to use this fact to their benefit. There are several credit cards and the offers which are targeted towards the youth and the college going students. These people have the slightest of the idea related to the no credit check loans financial implications of using the credit cards and the interest rates applicable on them. All they know is that they should get the card, and use it for whatever expenses they would like to make without caring about the repayments. The result is that there are a huge number of defaults by the young credit card holders. One would wonder as to how the credit card companies benefit in spite of the large defaults? Well, this is made possible by means of the high interest rates, penalties and the extra fees charged from the credit card holders. Not all the credit card holders default. There is a large number of them who pay the fines and the penalties and thus help the credit card companies recover the losses they incur on the defaults by the others.
So, the next time you are making any purchase or transaction using your credit card, remember that if you fail to make the payment on time you will see yourself paying beyond your expectations. Credit card companies will charge you very high penalties and if you cannot pay them in full, you can find that your credit card dues are never ending in spite of whatever payment you make. So, know all about the credit cards and the offers on them before you actually sign them and begin using. Go through the terms and conditions completely and the fine details before you start using any one of them.
This article will explain how credit cards work financially and technically, how to look for a suitable credit card, describe different available credit-card plans and discuss how your credit history may affect card options. We’ll also know about prevention of credit-card fraud – in the real world and online.
A credit card is usually a 3-1/8 inches by 2-1/8 inches, thin plastic card that contains identification information like a picture or signature. It authorizes the person whose name appears on it make purchases or services for which he will be charged &billed periodically. The data on the card is read by ATMs, POS readers and bank and Internet computers.
Encyclopedia Britannica traces the origin of credit cards in the United States during 1920s, when hotel chains and oil companies issued them to customers for purchases made there. Their use increased after World War II considerably.
In 1950 the first universal credit card was launched by Diners Club, Inc. They charged an annual fee and billed cardholders on a monthly or yearly basis. Another significant universal card was introduced by the American Express company in 1958.
The bank credit-cards came later. The bank pays to the merchants as soon as sales slips are received which the merchants love and then compiles charges applicable to the cardholder for the billing period. The cardholder then pays the bank in monthly installments with interest (called carrying charges) or the entire outstanding.
The brand VISA started in 1976 has origins of the first national bank plan – BankAmericard started by Bank of America in California in 1959 on a statewide basis. From 1966 onwards it was licensed in other states and finally rechristened VISA.
Major bank cards followed like MasterCard, formerly known as Master Charge. Smaller banks tied up with larger banks to offer expanded credit card services.
Credit Card Plans and loan considerations
The factors to look for while choosing a credit card are the costs & terms of the plan which is simply how much one pays for the privilege of borrowing.
The details are available in the disclosure form, usually a small brochure in fine-print.
Study minutely the credit terms and specifics like late charges and over-the-limit fees. These factors need consideration with how you pay the bills each month.
In case you pay the monthly bill in full, it is best to opt for a card with no annual fee and which provides a grace period for payment before finance charges are levied. In case you do not liquidate the balance due every month (like 70% of American Cardholders), please note the periodic rate used for calculating the finance charges. A major factor is to see whether this is a fixed or variable interest rate. A variable interest rate can have a significant effect on your burden to use the card.
Applicable Variable Interest rates used by Credit card companies depend on indexes like the prime rate, 3 or 6 month Treasury Bill rate or federal Reserve discount rate – these are available in the public domain.
Typically, the Credit card Company adds some percentage points (called a margin) on this index to arrive at the interest rate to be charged. Sometimes a formula is used to come up with the final interest rate. Though fixed rate plans may have slightly higher percentage points than variable rate plans, at least you know for sure the applicable interest rate which is not the case with variable rates which usually increase.
The Truth in Lending Act requires a lender to provide 15 days’ notice at least before a fixed rate can be raised. Some state laws stipulate a higher notice period.
Another important aspect is to check on the interest rates applicable on taking bad credit loans or cash withdrawal on the credit cards. It’s difficult to assess the same unless you compare them against the difficult short term, loans like the payday loans which charge extremely high interest rates on them.
Financial analysts often argue that since a fixed rate can also be increased with a 15-day notice, there is not much of a difference with a variable-rate plan which may change at any time. The advice is to analyze both plans closely. Check for upper & lower limit ceilings on the variable rate. In case rates are falling but the lower cap is say 15.9%, it is advisable to switch your card.
Regardless of the plan one chooses, monthly payments will have to be made. So, one can make considerable savings by opting for cards with low interest rates and zero annual fees.