Introduction to Credit Cards

Credit cards allow people to purchase an item now and pay for it later. Unlike other types of loans, if a person repays the full amount due on a credit card within a certain amount of time, they will not need to pay interest on the amount. When used in this way, credit cards can be a valuable tool, as they allow people to manage the flow of cash. There are some downsides to credit cards, though. The interest rates on some cards can be very high, more than 20 percent. If people do not pay the balance due on time, they face late fees.

How Long Have Credit Cards Been Around?

Credit cards date back to the 1920s and were first offered by department stores, hotels, and gas stations as an easier for customers to pay for goods and services, without the need for cash. The use of credit cards took off in the post-war era in the US. The Diner's Club card started in the 1950s and was soon in use by 20,000 Americans. In 1958, Bank of America and American Express introduced cards.

What is the Difference Between a Charge Card and a Credit Card?

The early cards given out by Diner's Club and American Express were actually charge cards, not credit cards. When a person has a charge card, they are responsible for paying the full balance at the end of each billing period. Charge cards do not have interest rates, as the user of the card usually does not have the opportunity to let a balance build on the card. To get a charge card, people typically need to have high credit scores and an excellent credit history. Typically, the cards charge an annual fee.

Where Can Credit Cards Be Used?

In the 21st century, many businesses accept credit cards for payment. Some cards are branded with a store's or other business' name and can only be used at that business and its affiliates. Other cards are designed to be accepted at any business that accepts cards. Credit cards are particularly useful for ordering products over the Internet and from mail-order catalogs. If a person's information is stolen during an online transaction, they have more protections when they use a credit card than when they use a debit card.

What are the Benefits of Using a Credit Card?

Used correctly, credit cards offer several benefits over paying in cash or using a debit card. Generally, it is safer to carry a credit card than it is to carry large amounts of cash. If cash is lost or stolen, a person has no way of reclaiming it. If they lose their credit card, though, they can call the company and have the card cancelled. People only responsible for up to $50 worth of unauthorized credit card charges. A credit card can come in handy in an emergency situation, such as if a car breaks down or a person needs to go to the ER and does not have the cash on hand to cover the bill. People also need credit cards to build a credit history so that they can receive other loans, such as a mortgage with desirable rates. Additionally, some credit cards offer rewards programs. People can earn cash back, vacation miles, or even merchandise when they use the credit card to purchase items.

  1. Credit and Charge Cards - Information from the Federal Reserve Bank of San Francisco on credit cards and charge cards.
  2. A Brief History of Credit Cards - Quick and simple history of credit cards from Time magazine.
  3. History of Credit Cards - Historical information on credit cards and an explanation of interest rates from NYU.
  4. 10 Places Not Use A Debit Card - A list of 10 instances where it is safer to pay with credit instead of debit.
  5. Four Reasons to Use Credit Cards Vs. Debit Cards - CBS News explains where it is better to use a credit card over a debit card.
  6. Advantages and Disadvantages of Credit - Lists of the benefits and drawbacks of having and using credit cards.