Credit Cards

Almost half a century back, just one word…”Plastics,” revolutionized our lives with all types of novel innovations that range from simple consumer products to the highly sophisticated materials used in complex industrial applications. The same Plastic has taken a new relevance in our society and it stands for what is popularly known as credit cards. We are living in a cash-less society and credit cards have become the virtual cash that almost every body is carrying in the wallet or purse. They have become part and parcel of our lives, providing a convenient way to shop and buy just about anything without having to tender any cash or currency almost anywhere in the world. It is no exaggeration to say that they are almost indispensable.

The Credit Card Business
The Credit card business has mushroomed into a multi-billion dollar industry that will never stop growing. As a result, there are many types of products available to the consumer to choose from. It becomes a dilemma trying to decide, which card is a better choice. This is exactly what we are going to talk about so the consumer has a better understanding of the various products, what they offer along with the terms, conditions and associated fees.

The process of opening up a credit card account is very similar to starting an account with a financial institution. The main difference being that you do not need to deposit any money. In essence, it is a form of borrowing that may involve fees and/or other charges that determine the overall cost of borrowing. All this information is provided in the application that you are required to complete in order to apply for a credit card. The approval of the card is dependant on your financial standing and credit rating. Some of the terms used in this jargon are:

APR (Annual Percentage Rate): APR is the yearly interest rate charged by the card issuer. This effectively is a measure of the cost of credit that you may incur on your purchases.

Periodic Rate: It represents the rate of interest applied to calculate charges on your outstanding balance for each billing period. 

Variable Rate: Some credit card plans have the APR linked to the prime interest rate or other economic indicators known as indexes. These are called “variable rate” programs in which, the APR can vary depending on the index’s performance or bank rate. These fluctuations can increase or lower the borrowing cost of your account.

Annual Fees: Some card companies charge fixed annual membership fees that may usually range from $25 to $100 or more for “gold” or “platinum” cards. These credit cards usually offer extra perks and benefits to the members. Some of the usual benefits are:

• Loan Insurance: The issuer will wave all outstanding balance on your credit card in the event of disability or death.
  Life Insurance: The card provides a certain amount of term insurance benefit automatically.
• Travel /Luggage Insurance: You will be reimbursed for lost or mishandled luggage during air travel when you purchase ticket with credit card.
• Reward Points for Air Travel/ Hotel Accommodation: You earn points with every purchase which can be redeemed towards airline tickets, hotel rooms and various other gift items.
• Points towards Vehicle Purchase: You can accumulate points on certain credit cards that can be used towards the purchase of vehicle.
• Extended Warranty: If you purchase appliances or other big-ticket items using credit card, an extended warranty is provided besides manufacturer’s warranty on some cards.
• Transaction Fees and Other Charges: These are some of the other costs associated with the card. There may be a fee if you use the card to for a cash advance, make a late payment, or exceed your credit limit. Some companies charge a flat monthly fee whether or not you use the card to make any purchases.
• Credit Limit: This is the maximum amount of borrowing you are entitled to and is set by the card issuer once your credit card application is approved. You have the option to request for an increase of this credit limit at any time, which may or may not be approved by the credit card company based on your financial standing.

Free Period:  This is one of the most IMPORTANT features designed for the benefit of consumer and is offered by majority of the credit cards. It allows the cardholder to pay off all the charges on the billing statement before the “due date” without having to pay any borrowing fee or cost. Also known as “grace period,” a free period usually has a span of 14-20 days from the billing date. As a word of caution for the cardholder, this is a “must have” feature when you are shopping for a credit card especially if you plan to pay your account in full each month. Without a free period, the card issuer may impose a borrowing cost from the date you make the purchase or from the date each transaction is posted to your account.

Shopping For A Credit Card 
When shopping for a credit card, you have to consider how you plan to use it. The best way to use any card is to pay your bills in full each month if it has the “free period” option. If you can do this on regular basis, you are a winner. You are utilizing the card to your advantage by avoiding unnecessary interest charges while delaying the payment on your purchases. In this particular case, annual fees and other charges may be more important than the periodic rate and the APR. Watch out for the situation when you use the cash advance feature; most cards do not allow “free period” privilege on cash advances even if they have a grace period for regular purchases. You are better off paying this amount as fast as you can without even waiting for your billing statement in order to minimize interest payments.

After having explained the significant terminology that is related to the credit cards, we recommend that you shop around to get the best deal for yourself based upon your needs. Always read in between the lines while filling out the application. If you don’t understand any of the terms, never hesitate to contact the card company to clarify all details. Before you accept any of the cards, make sure that it is the best that fits your requirements. Always protect your cards with extreme care and report any loss, theft or fraudulent use of the card immediately to the credit card company. 

For more information on credit cards, see our credit card information page.  

Copyright © 2006 World Of Financing

Design And Platform Credits: Matteo Turchetto | Andreas Viklund | WordPress