Understanding Credit Cards in Today’s World
Understanding credit cards in today’s world is very important to both the ordinary citizen and the businessperson. Today, the familiar plastic credit cards compete with checks to account for a major portion of daily transactions carried out in the developed world. A number of large credit card companies such as Visa, American Express and Master Card, have become internationally acceptable and this is very useful to people who have to travel abroad for business and holidays.
Credit card companies are effectively in the business of money lending and charge interest on late payments. For example, if a consumer charges $500 worth of shopping on the 5th of May to their credit card, the credit card company will give the customer 30 days credit to pay the amount back. If full payment is not made within the next billing period (usually 30 days) interest is accumulated on the amount. The interest rate will vary but in some cases can reach close to 20% annually. In some countries payments may be spread over a number of installments, as requested by the customer, and as agreed by the seller of the product or service. As an encouragement to card use, companies offer points based on card usage and these points accumulate and become redeemable against certain goods and services, for instance free flights
The credit card also provides a measure of security since cardholders have unique codes that testify to their cards being genuine. Most stores today have credit card reading devices that check these codes and verify that the card has not been reported stolen. Sometimes special phone numbers are provided for businesses to contact the credit card company and verify that the card presented to them is valid. Such security precautions are to the mutual interest of both the card owner and the shopkeeper. If a credit card is stolen it is possible to quickly have it cancelled and reported to the police, but if a person is using cash for their shopping and has their money stolen, it is much harder to avoid financial loss.
Although credit cards are very useful to many customers, understanding credit cards in today’s world also involves an appreciation of the fact that credit card companies charge for their services, like any other money lenders. Companies frequently charge a small fixed month fee to card holders but more importantly making delayed payments via a credit cards incurs interest charges, and if a person is not careful, heavy debts may accumulate.
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