Over the years, credit card companies, banks and
other businesses that offer credit to their customers
have created a wide range of credit card types for
different situations and uses. From ‘stored
value’ cards to ‘charge cards’
to conventional credit cards, there’s a way
for almost anyone to have the convenience of paying
for goods and services without using cash.
Credit cards actually fall into three major categories.
Although all are referred to as ‘credit cards’,
they don’t actually all give you ‘credit’
– the right to buy something and pay for it
later.
Credit Cards
Conventional credit cards are what most people
are thinking of when they refer to a ‘credit
card’. When you make an application for a
credit card, the issuing company checks your credit
rating and determines how much money they’re
willing to allow you to ‘borrow’. This
is your ‘credit limit’. You may charge
items on your credit card up to your credit limit.
The amount of your purchases is added to your ‘balance’.
When your balance reaches or exceeds your credit
limit, you may not charge any more purchases on
your card until you bring your balance back below
the limit.
Each month, you must make payments on the amount
that you owe, but you don’t have to pay off
the full amount each month. The credit card company
charges you interest on the remaining amount, which
is added to your balance. They also have the right
to charge you fees if your payments are late, if
you exceed your balance, and for certain kinds of
transfers. It’s the same as having a ‘line
of credit’ with a bank.
Credit cards issued by a bank or financial institution
may be used at any merchant that accepts credit
cards that are issued by the company. Some of the
major credit card companies are Mastercard, Visa,
Discover and Diners’ Club. Many oil and gas
companies also offer their own credit cards for
purchases of gasoline and other services at service
stations in their chains. Individual businesses
may also offer credit cards that can only be used
to make purchases at their own stores. One of the
most well-known of these is the Sears Charge card,
which is often used by people to establish credit.
Some of the variations of credit cards include
secured cards, and cards that offer rewards and
incentives for use.
Charge Cards
Like credit cards, ‘charge cards’
may have a preset spending limit. The difference
is that you are not allowed to carry a balance –
you must pay off the full amount charged on your
card each month. If you have an outstanding balance,
you’ll be charged interest on it, and can
not charge anything further on the card until it
is completely paid off. American Express is the
most well-known charge card.
Stored Value Cards & Debit Cards
Stored value and debit cards are technically not
credit cards at all, but many people think of them
as credit cards since most carry the logo of one
of the major credit card companies.
Stored value cards don’t allow you to access
money that isn’t already yours – i.e.
– give you credit. Instead, your purchases
are paid for with money that you’ve placed
in an account – either your own bank account,
as with a debit card, or a special account with
the issuing company with a stored value card. When
you use the card to make a purchase, the money is
immediately deducted from your account, reducing
the balance. When your balance reaches $0, you can
no longer make purchases using the card until you
‘charge’ the card with more money.
While stored value cards don’t allow you
to ‘borrow’ money or build your credit
(the two major advantages of credit cards), they
do offer many other conveniences associated with
credit cards.
For more information on any of these types of credit
cars, see related articles.
