It may seem incredible, but credit card issuers are flooding the mail with over 2.5 billion offers inviting people to apply for a credit card. Even those who wouldn’t qualify for a traditional credit card because of serious credit problems can now get one; some credit card issuers even specialize in this particular type of market. And according to financial gurus, there are at least a billion credit cards in circulation in the United States alone.
Credit has been a cornerstone of the economy for some time now. Surveys show that it is estimated that the average American household has at least twelve credit cards, including charge cards. While we tend to think that one credit card is pretty much the same as another, there are actually distinct characteristics to each type of credit card. It’s good to know the differences between the three types of cards available on the market: a bank credit card, a travel credit card, an entertainment credit card (although today the combined travel and entertainment card has become more common) and a retail credit card or house card.
Bank credit cards
You’ve probably noticed that most credit cards have the Visa or MasterCard logo and the bank’s name on them. You might assume that the credit card was issued by Visa or MasterCard. This assumption is not entirely accurate: these two companies do not issue credit cards directly to consumers. Most of the credit cards available on the market today are offered by thousands of banks around the world. Each bank is bound to the credit card association, as it is not allowed to issue any type of card unless it is a member of the association.
Visa is a private membership association, although it is preparing to go public. It began as an association of banks in California and on the West Coast. More than 20,000 financial institutions are members of the association, and virtually all offer the Visa card. MasterCard is also a membership association, similar to Visa, and originally consisted of member banks in the East.
A bank credit card is really a revolving line of credit. When you receive your statement, you can pay off all or part of your balance each month, increase the balance again, and so on. As a line of credit, the account has a predetermined credit limit that depends on key factors such as disposable income, credit history, etc. The credit limit can be as low as one month. The credit limit can be as low as $100 or as high as several thousand dollars.
Credit limits can range from $100 to several thousand dollars. Cardholders can get into trouble if they don’t manage their revolving credit line properly. When you carry a balance instead of paying it off, the credit card issuer starts charging interest on that balance – in some cases, the interest can be very high. The interest rate varies widely, depending on the card issuer, but you can expect the average interest rate on a credit card to be about 18%.
For example, if you carry a balance of $1,000 for 12 months, you pay $180 in interest per year or $15 per month. If you maintain a $1,000 savings account, you will earn about $40 in interest per year. Those who are in trouble will need to reduce their debt, and one of the most common ways to do this is to arrange to consolidate credit card debt, which helps to ease the interest burden.
Travel and Entertainment Cards
Travel and entertainment cards are similar to bank credit cards in that cardholders can pay for purchases at various stores and locations. However, they are also different from bank credit cards in that they are offered directly by credit card companies, namely American Express and Diners Club.
In the past, this type of credit card was mainly accepted by travel and leisure-related businesses such as airlines, hotels, restaurants, and car rental agencies. Today, all other establishments, such as high-end department stores, gas stations, and pharmacies, accept them. Like any bank card, today’s typical travel and leisure card offers the menu of features that most credit cardholders have come to expect, such as frequent flyer miles, baggage insurance, and collision insurance for rental cars.
Another difference between travel and leisure cards and bank cards is that travel and leisure cards do not have an extended line of credit. This means that you are required to pay your outstanding balances in full, in one or two billing periods, to keep the account current.
Travel and entertainment credit card providers, such as American Express and Diners Club, also provide categorized summaries of credit card charges at the end of each year. This is very handy at tax time.
Unlike the bank credit card and the travel and leisure card, which you can use at many outlets, the loyalty card is only accepted at one or more stores in the same chain. Private label cards