Credit Card Basics and Savings Tips

There is a perception by many people today that having a credit card, or several, means they do not have to bother with setting a monthly budget for themselves. The seeming ease of having a credit card to buy whatever they want, when they want it, hides the fact that there is a price to pay with ownership of credit cards.

Ask a child what a credit card is, and he or she may tell you it's a piece of plastic in your wallet that gives you "free money". Of course, there's a lot more to it than that. This little piece of plastic wields a great deal of power over the vast majority of people in our society. It's a compressed form of buying power that allows users to borrow money from a bank or financial institution in order to make on-the-spot purchases. Credit cards make buying easy. The hard part is paying the money back before the interest starts to compound.

Credit cards are getting easier to obtain, too, and the process involves submitting an application that acts as an agreement between you and your credit supplier. If they approve of your application, you will shortly receive your card in the mail. The supplier will set a pre-determined limit on how much you may borrow at a time, and up to that limit, you can purchase goods or access cash from their "bank." Most credit card firms place a limit on your monthly spending.

The flipside of the plastic card has a magnetic strip which is encrypted with coded security and demographic information. The information held in the strip is transferred during a transaction to the retailer's machine to allow it to communicate with the card supplier and authorize your payment. Millions of retailers accept credit cards. You can also use the card for purchases over the telephone or on the Internet, depending on the merchant's ability to accept payment of this kind. Finally, credit cards can also be used at ATM cash machines to withdraw cash from your credit card account.

There are many credit card suppliers, but seven of them represent the bulk of the industry. VISA and MasterCard are the two dominant players, as well as American Express, Citi, Discover, Diners Club, and JCB. Don't be fooled by the fact that many banks or other organizations arrange partnerships with the big credit card suppliers to create branded cards that have the logo of both companies.

When you make a credit purchase at a retail store or service outlet, the card is swiped into a special processing machine that retrieves your account data. If you buy online, you will be asked to enter your credit details over the merchant's website. Online shopping can be dangerous, so make sure that the site is secure before sending your credit information over the Internet. When the purchase has been approved, the credit card supplier will send you a bill for the amount spent. You are required to pay the full amount, or send partial payment. If you pay in full, the credit card supplier won't charge interest.

Here's where credit cards can be difficult. If you opt for making a partial payment of simply meeting your minimum obligation, you will be charged interest. If you have made numerous purchases or used credit to buy expensive items, the interest can add up very quickly. This is how the credit card suppliers make their money. Late fees can also be charged, so be sure to make your payment on time.

Credit cards can be valuable and convenient tools for today's shoppers. Many have learned, however, that the ease of use is in no way worth the hassle of facing insurmountable interest charges. Pay your balance in full whenever possible for every purchase you make. Better still, tuck your card away to use for emergencies only, and use old-fashioned cash instead.

Article Source: http://www.myaddirectory.com

Author Robert Jonsonn is a columnist for various popular online magazines, on health news and consumer guide themes.
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