Credit Card

A credit card is a card that is designed for allowing the cardholder to pay for goods and services, balance transfers and withdraw money on credit. It can be issued by a bank or financial institution affiliated with the card association. The issuer is the institution from which the cardholder borrows the money and the one that establishes the credit limit available to the credit card.

When applying for a credit card, there are two decisive aspects that will determine if a person is granted the card as well as the credit limit to it, they are:

• Credit history: it is checked by the issuer to see if the applicant is trustworthy. Having a low credit score could result in a refusal.
• Income: it is a way to take into account a person’s ability to pay off his debts.

Once a credit card application has been approved, a revolving account is created by the issuer. This type of account is where the outstanding balance is registered. While the cardholder does not have to fully repay the amount in debt each month, he does have to pay at least the designated minimum amount. However, if the balance is paid in full within the so-called interest-free period, no interest will be generated. Failure to make the monthly minimum payment will result in a penalty fee.

The information regarding the minimum payment and the due date for it is provided in the monthly statement. Likewise, transactions are described in detail and the total amount in debt is specified.

The difference between interest and minimum payment lays in that the former is the percentage of a certain amount of money that is charged for the use of money borrowed from the issuer, while the latter corresponds to a percentage of the remaining debt.

Credit cards offer the following major benefits:

• Credit cards are generally accepted across the world, although some fees might apply when used overseas.
• They can also be used for online or telephone shopping.
• Credit cards offer an easy way to get access to instant credit.
• They offer consumer protection through the chargeback scheme, which means that customers are reimbursed if the purchased products fail to arrive, are not as described or are damaged.