Credit Card Types and Uses

A credit card is a way of making purchase, where, a user is issued a plastic card, which acts as a substitute for cash payments. The issuer of the card is usually a financial institution like a bank, which grants a line of credit to the user, so that the user can make payments for his purchase, or withdraw money in the form of cash withdrawals. This amount is later paid back to the lending institution, by the user.

A credit card is therefore, a plastic card, which entitles the user, to buy goods and services, on the basis of the holders promise to pay for these goods and services. The basic difference between a credit card and a debit card is that, in a credit card, the user buys goods and services on credit, whereas in case of debit cards, he buys them on the basis of the money deposited in his savings account.

You can choose from a number of cards. Ever since the credit cards came into existence, they have undergone many changes. Several types of credit cards evolved in due course. The following are some of the types of credit cards, which you can opt for:

1. Traditional credit cards
Traditional credit cards were basically offered by department or chain stores, gasoline companies, airlines, banks, credit unions and other lenders. Some of them were eligible for use at only one retailer while others were eligible for use at many retailers.

2. Prestige cards
Prestige cards like silver, gold and platinum cards have higher credit limits, as well as higher annual fees than traditional credit cards. Many of them offer perks such as emergency medical and legal services, collision damage waiver insurance for car rentals etc. As it is, one can opt for one or more of these cards, depending upon your requirements.

3. Affinity cards
Affinity cards are usually linked to charitable organizations. As it is, in these types of cards, a part of the annual fee or yearly charges, (or a fixed amount per transaction) is donated to the sponsoring organization.

4. Reward cards
With the competition going tough, more and more credit cards companies began to offer wonderful perks to attract more and more clients. Reward cards were a big name in this regard. These cards offer perks such as cash rebates, frequent-flier miles, discounts on goods and services, interest-rate reductions, and many other incentives. One thing, which you should always keep in mind, while choosing a card with rewards, is that, you should make sure that the rewards are for products, which you use. Also, make sure, to read the terms and conditions properly, to know about the annual fee or a limit on the amount of the reward earned annually.

Apart from the above card types, there are also, secured cards, smart cards, prepaid disposable single purpose cards, reloadable cards etc. You can choose from any of these options, the card, which suits your requirements.

Do we need a Credit Card -Bill of Rights

With a heavy rise in default in payment by credit card users, it is time for some serious analysis. Not only the credit card firms have been affected, but the users in general have also been affected. In order to match the rising competition, almost all credit card companies have indulged in extending credit to a large number of people, without doing proper check of their credit score.

In fact, an Average American today carries around six to seven credit cards in his wallet. Now, with so much credit at their disposal, most users are not able to overcome the temptation of purchasing more than what they can afford. This leads to overspending by the user, which gradually develops into a very bad habit. As a result many users begin to buy things which they do not need. Apart from this, many credit card companies also offer various schemes, which also induce users to buy more. This also adds to their plight. Apart from this, many a times, credit card companies indulge in malpractices.

In order to deal with these problems, the Credit Card Bill of Rights has been presented by Mark Udall, a well reputed US Congressman. The bill aims at directing the credit card companies to send a notice to the user before raising their rates. This would be a remarkable step as the rates and terms of the credit cards would be forced to freeze, once the cards have been cancelled by the user. The focus is on revoking the authority of the credit card companies, in regard to rise in the rates of interest and fees on the outstanding balance.

Not only that, the bill also seeks the halt of charging over the limit fees on approved transactions. Despite stiff opposition from the credit card companies and their representatives, most analysts believe that, such a bill should have been presented a long time back. It is worth mentioning that, the credit card companies have failed to mend their ways and continued to indulge in extending credit without proper check, along with several forms of malpractices, which are a major area of concern.

Some economists also fear that the bill might injure the financial sector, which is already in a very bad shape. However, despite their skepticism, the fact remains that such a step was long overdue.

The credit card sector needs to welcome the upcoming changes with open arms. This would not only help them in keeping the users satisfied, but would also save them from extending credit to people with bad credit history. By saving the users from being overcharged, the number of write offs would be far less and this would be extremely wonderful for the economy.