Tag Archives: bank
The Basic Credit Card Types (Page 1 of 3)
It may seem incredible, but credit card issuers clog the mails with over 2.5 billion offers inviting people to apply for a credit card. Even those who would not qualify for a conventional credit card due to serious credit problems are now able to get one; some credit card issuers even specialize in this particular type of market. And according to financial gurus, there are at least a billion credit cards in active circulation throughout the United States alone.
Credit has been an economic cornerstone for some time now. Surveys show that the average American household is estimated to have at least twelve credit cards, including charge cards. While you may tend to think that one credit card is pretty much the same as the next, there are in actual fact distinct characteristics for each different credit card type. It is good to know these difference between the three different types of cards in the market: a bank credit card, a travel credit card, an entertainment credit card (although nowadays the combined travel and entertainment card has become more common) and a retail credit card or house card.
Bank Credit Cards You have probably noticed that most credit cards bear either the logo of Visa or MasterCard together with the name of the bank. It would appear that the credit card has been issued by either Visa or MasterCard. That is not quite an accurate assumption: these two companies do not issue credit cards directly to the consumers. Most of the credit cards on the market today are offered by thousands of banks around the globe. Each bank is linked to the credit card association, because are not allowed to issue any kind of card unless they are association members.
Visa is a privately held membership association, although it is preparing to go public. It started as an association of banks in California and the West Coast. There are over 20,000 financial institutions in the membership rolls, and virtually all of them offer Visa Card. MasterCard is also a membership association, similar to Visa, and originally consisted of member banks in the East.
A bank credit card is in reality a revolving credit line. When you receive your statement, you can pay all or part of your balance each month, run up the balance again and so on. Being a credit line, the account comes with a pre-determined credit limit that depends on key factors like disposable income, credit history, etc. The credit limit can be as low as a $100 or as high as many thousands of dollars.
It is possible for card holders to get themselves into trouble when they do not properly manage the revolving credit line. When you carry a balance instead of paying it off, the credit card issuer starts charging interest on that balance in some cases, this interest could be pretty steep. The interest rate varies widely, depending on who issued the card, but you could expect the average credit card interest rate to be at about 18 percent.
For instance, if you carry forward a $1,000 balance for 12 months, you pay $180 in interest per year or $15 every month. If you maintain a $1,000 savings account, you will earn about $40 in interest per year. Those who get into trouble will have to reduce debt, and one of the more common ways to go about this, is to arrange for credit card debt consolidation, which helps lighten the interest burden.
Should I be taking out a loan?
A loan, if done under the right circumstances and for the right reasons, can be a good thing.
Heres why:
If you take out a loan and you are diligent when it comes to making your monthly repayments, you will establish whats known as a good credit history. Your credit history is established based on the number of credit accounts you have. An account could include a clothing account at a retail outlet or a credit card from a bank.
So the answer to the question should I be taking out a loan is simple:
You should only be lending money in situations where you really need it and not to buy things that you want.
This is where the line definitely becomes blurred for a lot of people. Many people get stuck in a vicious circle of debt because they start using their credit cards for luxury items and ultimately overspend. To make matters worse, the more you spend on your credit card, the higher your credit limit goes, giving you leeway to spend even more.
A credit card can be a valuable asset if you use it in the right situation. Lets say you earn R5000 a month. R1500 of that goes toward groceries and toiletries. R2000 goes toward rent, and youve got R1500 left to save or do whatever you wish. During one particular month your car breaks down, you dont have insurance and the repairs to the vehicle are going to cost R3000.
You only have R1500 to spare- what now? Youve got your credit card right? So all you need to do is use your R1500 spending money and the R1500 you would have spent on groceries to pay for the repairs to your car. Then you use the credit card to pay for your groceries. This is an effective compromise because you will only be putting R1500 through on your credit card instead of the full R3000, so youll end up paying back less.
Why would I ever need a good credit history?
Well besides having a credit card to bail you out of situations like the one described above, having a good credit history comes in handy when you make one of the biggest purchasing decisions of your life -buying a house. Houses are expensive, which means that youll have to lend from the bank. In the last couple of years lending criteria have become stringent, making it much harder for the average person to take out a loan.
Banks take a number of factors into consideration when assessing loan applications, including monthly income and credit history. If the bank can see that youve made an effort to pay your account on time each month theres a much greater chance that theyll approve your loan.