Credit Cards and Their Alternatives
With so many different types of consumer credit cards available today it can sometimes be slightly overbearing determining which type of card you want or need. The following is a brief guide on the different types of consumer credit cards available today:
Credit Cards
A credit card is essentially a loan agreement between you and the card provider for a specific sum of money, known as the card limit. You then use the card to purchase goods, services or draw money, which you can then elect to repay by minimum repayments, lump-sum repayments or in whole on the specified date in your credit card statement - which is usually monthly.
With your credit limit remaining the same each month, the amount you have available to borrow each consecutive month is determined on how much you repaid in the previous month. If you do not repay the statement amount you owe each month in full, the card provider will then charge you interest on the card as a service charge. Because of the structure of credit cards, it is not uncommon for you to hear people referring to users of them as living on the “never, never”.
Debit Cards
A debit card works very much like a credit card in that you can use it to pay for goods, services or draw money and is often ‘guaranteed’ by one of the major credit card providers, such as Visa or MasterCard. The essential difference between a debit card and a credit card is that a debit card only allows you to use a specified sum available on your account – for example, the balance on your checking account. For this reason debit cards are also commonly known as ‘secured’ credit cards.
Charge Cards
Again similar to credit cards, charge cards allow you to pay for goods and services and your purchase is ‘guaranteed’ by the card issuer – for which Amex and Dinners Club are the main issuers. However, one difference between these types of consumer credit cards is that a charge card will not allow you to carry over a balance to the next statement period and you are required to repay the balance in full on each statement payment date. As such, charge cards do not charge you interest, but rather make their money charging customers a membership fee. Also, note that some charge card companies do not set limits on how much their customers’ can spend, so their use can be a little tricky to control if you are financially disciplined!
Store Cards
The final type of consumer credit is known as a store card. Store cards vary and are a hybrid between credit cards and charge cards in that some let you carry over a balance while others do not. One common factor, however, between store cards is their use is normally limited to making payments in the chain of store of the issuer. As such, they are an ideal cheap vehicle for stores to move merchandise which may not have been sold had you not used the store card.
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