If you own a credit card, you are authorized to charge purchases against a pre-approved line of credit. Credit cards may be issued by banks, retailers, and other credit grantors. Some card issuers charge an annual fee to cover account-servicing costs, others do not.
 
After making purchases with a credit card, they become payable after a Grace Period during which no finance charge is imposed. Afterward, the balance due may be paid in full or paid down in monthly installments with interest. This is commonly known as revolving credit.
 
Some card issuers charge credit card interest from the purchase date whether the cardholder's account has an outstanding balance or not. Credit card interest rates, interest calculations, annual fees and repayment terms may vary considerably among cards.

Credit Cards: Pros and Cons

Credit has both advantages and disadvantages. By understanding your responsibilities and using it wisely, you can capitalize on the advantages and reduce the disadvantages.

Advantages

• Ability to buy needed items now

• Don't have to carry cash

• More convenient and widely accepted than checks

• Creates a record of purchases

• Receive loyalty points and other rebates

Disadvantages

• The cost of the item may be higher if you incur interest

• Using a card may incur fees

• Financial difficulties may arise if you lose track of how much you spend each month

• Provides an avenue for increased impulse buying

How Are Charge Cards Different?

Charge cards are a little different from credit cards. Charge cards usually have no charge limit, unless the local banking regulations impose one.
 
You can usually charge as much as you want, but you are required to pay off your entire balance when your bill arrives.
 
If you don't pay your charge card bill in full, your account may be suspended and you will be charged interest rates on the outstanding balance as well as any additional fees. Your bill may also be sent to the collections department.

Go to top