The Ins and Outs of Credit Cards

Credit Cards, as we know them today, have a long history that dates back to the early 1900s. Back then, stores would issue cards to customers for them to purchase items on credit. But this was really to create customer loyalty so they would return to the store.

According to MasterCard the first bank-type card was called Charg-It, in 1946, and was put into use in John Biggins a banker from New York. John Biggins was a banker and let account holders use the Charg-It card at local businesses. The businesses would forward the bill to the Biggins’ bank and he would pay it. Then he would bill the account holder.

In the late 1940s, the Diners Club card was introduces. This started out as a cardboard card used at Major Cabin’s Grill in New York when a customer forgot his wallet. By the early 1950s there were 20,000 Diners Club cards in use and in the early 1960s Diners Club cards became plastic. American Express introduced its first plastic credit card in 1959.

Before 1959, customers had to pay off credit bills at the end of each month. But starting in 1959, the idea of revolving credit emerged. Today, the term charge card means a card that has to be paid off each month – where a credit card is card that has a line of credit that is revolving.

Today’s Visa and MasterCard were born from an association of banks that pulled together to issue credit cards. Banks become members of the association and are then able to issue a credit card with the Visa or MasterCard logo depending on which member association they are a part of.

Credit Card companies make money by charging interest on the account balance each month and through fees associated with the card. Charge cards often make money by charging a membership fee or annual fee. Some credit card companies also charge annual fees.

The main benefit to having a credit card is convenience. Shoppers or business owners don’t have to worry about going to the bank to withdrawal cash or having a certain amount of cash on hand in order to make purchases.

Another major benefit of having a credit card is safety. If cash is stolen, it’s almost impossible to replace. But if a credit card is stolen, purchases can be traced and many times if the card is reported stolen within a certain amount of time, the card holder is not responsible for charges made by unauthorized users.

Credit cards also allow users to float money. This means that if the credit card holder is short on cash or doesn’t have enough to pay for a purchase, he or she can buy the item anyway. And then the card holder can make payments or pay off the purchase once he or she has the funds.

There are disadvantages to credit cards too. Many credit cards carry a high interest rate. This is the cost of having a revolving line of credit. Interest is charged for the balance that remains at the end of each month on the card. Credit card companies will often offer a low introductory interest rate and then raise interest rate much higher once that introductory period is over.

Credit card companies are often notorious for charging fees. Your credit card will have a credit limit. If you go over that limit, a fee will be charged to your account. Or if you are late making a payment, then a fee will be charged to your account. Credit card fees can add up quickly.

Another disadvantage of having a credit card is the possibility of floating too much money – making too many purchases with credit cards so that you can’t afford to make the necessary payments on the credit cards.

It’s best to look at your finances and research credit card companies before applying for a credit card. Credit card companies are required by law to disclose all fees and interest rates associated with their cards. So, you can decide which credit card or credit cards you can afford and which ones best suit your needs.