Credit cards are a widely accepted form of payment, especially when compared to writing cheques. Credit cards are usually safer than carrying cash or cheques.

What is a credit card?
A credit card is a payment card issued to a person for purchasing goods and services and obtaining cash against a line of credit established by the issuer. Credit cards can be of two types: those issued by merchants and vendors, such as department stores or oil companies, and general purpose credit cards issued by banks. Any card, plate, or coupon book that may be used repeatedly to borrow money or buy goods and services on credit (includes acquiring processor, address verification service, authorization, capture, credit card company, credit deposit, interchange, interchange fee, issuer, payment processor or credit card association).

It is a plastic card bearing an account number assigned to a cardholder with a credit limit that can be used to purchase goods and services and to obtain cash disbursements on credit, for which a cardholder is subsequently billed by an issuer for repayment of the credit extended at once or on
an installment basis.

The eligibility for issuing a credit card are

  • Place of work is considered mainly.i.e. card issuers will normally check the reputation of the company you work in, the number of years you have put up there and your designation.
  • Age factor, you have to be above 18 years of age if you want to have a credit card. If you are young and raring to go at your first job, chances are that banks will tread cautiously.
  • Mode of communication is a must. i.e. you should possess a telephone at home.
  • Profession is another most important factor, which shows our capacity of payment.
  • Other than these broad set of factors, issuers will also like to check the number of dependents of the applicant, whether he/she is servicing a loan and whether the applicant has another credit card. If a person possesses more than one credit card, one's credit history can easily be verified and depending on the record issuers will think of giving you another card or not. It is important to remember that issuers don't look at any of these factors in isolation and the sum total of all is deduced to judge whether the applicant is worthy of a credit card or not.

With the credit card truly becoming an international citizen, issuers have begun highlighting the value added features offered along with the basic product. While some of them are offering attractive interest rates, others are luring customers by their reward schemes. With a plethora of choices on offer it is not easy to come to a decide on any particular card. However, a comparison on the basis of a few basic parameters will help us make an informed choice.

How to select which is best for us?

First, there's the credit limit. All banks have different limits set for customers depending upon the type of card in their possession. Even within a particular type of card, limits may vary depending upon the credit worthiness of the individual. This depends, among other things, on the gross income of the individual and the period for which he/she is using the card. However, some banks
like Citibank and American Express have cards which have no set credit limit. Amex, for eg, has a charge card which has no upper limit and allows one to spend as much as one likes (provided the holder repays the amount at one go).

A second criteria could be the lost card liability. If one is travelling and has lost his/her credit card then reporting the loss will not be much of a problem. As now it can be reached from any corner of the world for information on one's card as well as for reporting the loss.

Nowadays, almost all cards come with various goodies attached. These include airline ticket booking and insurance benefits on lost luggage and accidental deaths.

Many credit card companies target students because they feel that, students are a good credit risk, despite the fact that they often do not have jobs and are also borrowing student loans. Research has shown that student borrowers are valuable customers because they tend to stay loyal to their first card, continuing to make purchases for many years to come.

The advantages of credit card are

  • Safe alternative to cash:
    When you have your card in your wallet, you don't have to carry cash that can be lost or stolen. If your credit card is lost or stolen, you can report the missing card to the card company. The company will then stop accepting any charges on your card.
  • Builds a good credit history:
    If you use your card responsibly, you can begin to build a good credit rating for yourself. Later in life, when you need a loan, a lender will want proof that you pay your debts. A good credit card history will help you get your loan. A poor credit history will work against you.
  • Gives you time to pay:
    Depending on when you make your purchase and when your monthly bill comes due, you can get extra time to save up and pay for what you just charged. If you can pay off the bill entirely, you are really making the credit card work for you.
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