A credit card is a small piece of plastic used in place of cash for payment. It is different from a debit card, which is used as a form of check and enables the holder to pay for purchases without cash, but with the amount immediately subtracted from his account. The use of a credit card entails a promise to pay for the product or service within a given period.
Credit cards allow users to maintain balance on their debts, which means that it is not absolutely necessary to repay the entire amount owed every time a statement is issued. The credit card holder can simply pay the minimum amount set, which is a small percentage of the total debt. However, the credit that remains is subject to monthly interest rates.
A credit card has a certain credit limit. It is set once the credit card application is approved. Any requests for an increase in credit limit may depend largely on the cardholder’s credit score.
When a cardholder makes a purchase using his card, he has to sign a receipt containing the transaction details. However, the transaction will not push through unless it has been approved by the bank through an electronic verification system. This assures the merchant that the card is still valid and that the cardholder is still spending within his credit limit.
The primary advantage a credit card can provide is convenience. It allows the holder to make purchases without having to make a withdrawal from the bank or a cash machine. At the same time, it enables travelers to make payments in foreign countries without having to find a money changer.
On the other hand, credit cards should be used with caution. It can be very tempting to make purchases when one does not see the money being spent. At the same time, high interest rates, especially if the total amount owed is not paid in full per pay period, makes the use of credit cards an impractical and costly option.