Everything About Credit Cards
The practice of purchasing goods and services on credit is not a contemporary phenomenon. Lending and borrowing date back thousands of years, with usury laws codified at least as far back as the ancient Hebrews. The widespread proliferation of credit cards has roots in the early 20th century. Frontline, the PBS television program, reports that the average American family carries between $7,500 and $8,000 in credit card debt.
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History
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Credit cards issued by local merchants were common as far back as the 1920s, but the Diner's Club card, first issued in the early 1950s, was the first U.S. national credit card. American Express followed in 1958. In the same year, Bank of America's BankAmeriCard, the precursor of the Visa credit card, was the first national bank-issued credit card. The Interbank Card Association followed in 1966, which became Master Charge in 1969 and renamed to MasterCard ten years later. The year 1985 saw the introduction of the Sears Discover Card, and it had its national launch in the following year.
Types
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Three primary types of credit cards exist: Travel and Entertainment cards, sometimes referred to as T&E cards or charge cards, bank credit cards and merchant credit cards. T&E cards, such as Diner's Club and American Express, are primarily for convenience and the cardholder must pay all charges in full at the end of the monthly billing cycle. The issuing companies do not allow cardholders to carry a balance beyond their billing due date. Bank credit cards provide cardholders with a revolving line of credit. Cardholders can pay balances in full at the end of each billing cycle or elect to pay a smaller amount and carry a balance on their account. Merchant-issued credit cards that cardholders can only use at specific locations, such as department store credit cards or oil company cards, may either be T&E cards or have revolving credit features.
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Costs and Fees
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Credit card companies earn money from consumers and merchants in a variety of ways. They typically charge merchants a percentage of sales made on the card, referred to as the discount rate, in exchange for providing the merchant access to the credit card company's customers. Credit card companies may charge an annual fee to their cardholders. They may also charge a number of ancillary fees, including over limit fees, late fees and cash advance fees. Cards that have revolving credit usually charge interest on balances carried beyond the grace period. Credit card companies may charge other companies to include advertising with the monthly statement they send to their cardholders.
Considerations
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Credit cards have some advantages over using cash. Credit card companies replace stolen or lost credit cards with minimal consumer liability, typically no more than $50, while consumers rarely recover lost or stolen cash. Credit cards give consumers certain rights of return if the goods they purchase are defective. Each credit card comes with a detailed cardholder agreement that spells out the cardholder's responsibilities, liabilities and rights. Consumers may elect to maintain different credit cards for different purposes. They may prefer credit cards that offer an extended interest-free grace period for convenience purchases that they intend to pay in full by the end of the billing cycle. Those who wish to make major purchases that they need to pay for over time may prefer credit cards that offer a low interest rate.
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References
- PBS: Frontline: Secret History of the Credit Card
- Federal Trade Commission: Choosing A Credit Card: The Deal is in the Disclosures
- Hoffman Brinker & Roberts: Credit Card Debt Statistics
- Time; A Brief History of: Credit Cards; M.J. Stephey; April 23, 2009
- Board of Governors of the Federal Reserve System: Federal Reserve Statistical Release -- Consumer Credit
- Discover: Company Milestones
Resources
- Photo Credit credit card detail image by gajatz from Fotolia.com
