Credit Card

What is a Credit Card & What Does it do?

What is a Credit Card

What is A Credit Card? – Everything You Need to Know About Credit Cards

Given that we live in a society where most people use credit cards, it might be hard to believe that there are still people out there who use debit cards and/or cash only. However, many people do not like the idea of the interest one has to pay on credit cards, and therefore do not utilize it. If you are not familiar with credit cards and have been dealing in cash all your life, this article will help you understand what credit cards are and how they work.

A credit card is a method of payment. They allow the user to pay for goods and services. They have made lives very easy, but at the same time, you have to keep an eye on interest rates and make timely payments otherwise your debt will increase significantly.

What do Credit Cards do?

The owner of the card or the issuer opens an account in which a credit limitation is set. The user or consumer then can use the card within that restricted limit to pay for the goods and services purchased. The issuer may also use the credit card for advance cash withdrawal from ATMs. Credits cards also allow the consumer to a balance of debt, while being charged with interest.

What is the Difference in a Credit Card and Debit Card?

Well basically a credit card holds a credit balance, and a debit card holds a debit balance. With a debit card, you can buy goods and services or withdraw cash but with your own money. With a credit card you can makes purchases by borrowing money. From a bank’s point of view, debit cards are used to withdraw cash from a checking account, likewise, credit cards increase a bank’s liability as the user is using the money borrowed from the bank.

What is Liability?

Liability is a term used to describe something you are accounted for. It is your legal responsibility and can also be described as a burden.

Advantages of Credit Cards

There are a lot of advantages in having a credit card. Some are as following:

  • Instant payments
  • Emergency cash access
  • Some credit cards offer interest-free loans
  • Builds attractive credit ratings
  • Keep track of expenses


Disadvantages of Owning Credit Cards

Where there are advantages of having credit cards, there are also disadvantages as well:

  • Tempting
  • Carries a balance
  • Debts
  • Hidden charges
  • Frauds


Blessing or Burden?

Credits cards may be one of the fastest methods of payment, but you should a number of factors before choosing one. Yes, it provides you with cash when you are in need of it in an emergency, but credit cards come with credit limitations. You may see a pair of irresistible shoes or stilettos, but you do not have enough cash so you decide to use your card, this happiness is a lot to take in right? Don’t forget! You have to pay that amount including an interest rate to the bank.

Due to the excessive usage of credit cards, a lot of people are able to commit frauds. Let us assume you are buying goods from a company which is actually a set up. You paid the amount for the goods from your credit card, which eventually you have to pay back, but you did not receive your consignment. Even though credit card companies and the concerned authorities are always taking measures to minimize and eliminate the possibility of fraud, it still happens from time to time. However, if you use your card responsibly, and be very careful about sharing your information, you should be able to benefit from the many advantages it has to offer.

Have any opinions of your own? Do feel free to share it with us!

About the author

Willie DeJarnette

Just wanted to provide some basic knowledge of credit cards, credit score, and other credit types financial resources. Always trying to provide an understanding how to use credit cards and basically staying away from financial ruins.

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