| |
Credit Card Lingo
By Ethan Hunter
Knowing What¡¯s Out There ¨C And What To Choose
The World of finance can be a tricky game for both the
seasoned veteran and the novice borrower. Banks can ¨C
by accident or design ¨C make even the most simple
information seem complicated and through this unwittingly
(or not) induce their customers to go for products that
might not be best suited to their needs.
Credit, charge, ATM and debit cards are not all alike.
Although you might think that they are basically the same
thing ¨C a way of making payment for purchases or means of
getting cash ¨C they are actually quite different. So as to
use these cards wisely, you should know what each one is
and how it differs from the others. Here¡¯s some information
to help you choose wisely.
Credit Cards
Credit cards can be a great way of paying for a purchase.
They are easy to apply for, easy to use, and flexible in their
repayment options. However, if you carry a balance, credit
cards can be like very expensive loans.
A credit card works like this: the credit card company
supplies you with a card; you use that card to pay for items
and services up to a certain total amount -- your credit
¡®limit.¡¯ The store or service provider then collects what you
owe from the card issuer, whom you repay. You're then
allowed to pay off as much or almost as little as you like off
the balance each month, so long as you pay a minimum
amount each time (usually 2.5 per cent).
On the outstanding balance you¡¯re charged interest (which
can be as high as 25% or more each year) at the end of
each monthly period, unless you pay the full balance each
time your bill arrives.
Credit cards are immensely profitable for issuers for a
variety of reasons. The high rate of interest yields issuing
banks and companies vast profits ¨C in some cases the bulk
of an institution¡¯s earnings. In addition to the interest,
many companies charge an annual membership fee for a
credit card, as well as a plethora of other charges, including
late fees, over-the-limit fees and other miscellaneous
charges. Companies also profit by charging stores a fee
each time a customer uses a credit card in their
establishment.
There are three different types of credit card available:
Unsecured Credit Cards
These cards are commonly made available to those with
good credit history
and credit score. These cards require no bank deposit
amounts to secure and usually have no annual fees and
low rate of interest.
Higher Risk Credit Cards
These cards are usually given to people who have a lower
paying job, and/or poor credit history and credit score.
Often these cards charge an activation fee, and also usually
charge an annual fee of up to $80.
Secured Credit Cards
These cards are given to people who have a lower paying
job, and/or a very poor credit history and credit score.
Often these cards require a deposit
to be made to the lender, sometimes as much as near or
equal to the amount
of credit available on the card. If the borrower can prove
their credit worthiness over time, that credit limit is then
upped. These cards also attract a high annual fee of up to
$100 and charge high rates of interest.
Charge Cards
Charge cards (also known as travel and entertainment
cards) are slightly from credit cards. The most famous
charge cards, such as American Express and Diners Club,
have an unlimited credit limit. Normally you can charge as
much as you like, but you are required to pay off your
balance in full when your bill arrives.
There¡¯s one exception to this: If you charge air fare, cruise
fees or hotel charges booked through a travel agent on an
American Express card, you have an option to pay off your
balance over 36 months. There¡¯s a sting in the tail,
however: you'll be charged around 20 per cent interest and
will have to make minimum monthly payments of $20.
The way charge card companies like American Express make
their profits is by charging very high annual fees ¨C up to
$100 ¨C and by hitting merchants with relatively high
charges each time a customer pays using their card.
If you don't pay your charge card bill in full (unless the
charges are travel expenses on an American Express card),
you'll get a one-month period of grace, when no interest is
charged. Beyond that, however, you'll be charged interest,
which weighs in at about 18 per cent. After about three
months, if your account is still not settled, your account will
be closed and your bill sent to the collections department.
Cash Advances
Some people use their credit or charge cards to obtain cash
advances. This can be an expensive way of accessing cash.
Most banks charge a transaction fee that can be as much
as 4% for taking a cash advance. Interest is also charged
from the date the cash advance is posted, even if it¡¯s paid
back in full when your bill arrives. Moreover, the interest
rate is usually higher on cash advances than on ordinary
credit card charges.
ATM & Debit Cards
ATM and debit cards offer most of the same functions as
credit and charge cards, but the crucial difference is that the
money comes out of your bank account straight away. If
you don¡¯t have the money, you can¡¯t buy the product.
For some people this is a preferable option: they like to
keep track of their outgoings, to keep tabs on what they¡¯ve
spent, to avoid any sort of debt ¨C no matter how brief.
There are disadvantages to using debit cards. It doesn¡¯t
give you the option of up to a month to settle your
statement. You also don't have the right to withhold
payment with a debit card (the money is immediately
removed from the account) in the event of a dispute with
the merchant over the goods or services paid for. Some
banks and merchants also charge transaction fees for the
use of debit cards.
About the Author
Ethan Hunter is the author of many credit related articles. If you are looking for help with Home Loans or any type of credit issue please visit us at http://www.creditcardunlimited.com
Article Source: http://www.simplysearch4it.com/article/8408.html
| If you wish to add the above article to your website or newsletters then please include the "Article Source: http://www.simplysearch4it.com/article/8408.html" as shown above and make it hyperlinked. |
| Some other articles by Ethan Hunter | Credit Card Debt Problems
What to Do If You Hit the Debt Mire
When debt goes bad, it becomes more than just a financial
problem. It can take over your life. If you have a debt
problem ...
Credit Cards - The Basics
How Lenders Operate - And How They'll Make a Tidy
Fortune from the Unknowing
Credit card companies might seem like immensely clever,
money ...
|
|
| |
|
