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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