What is the meaning of Credit Card?
A credit card can be defined as a card (usually plastic) that financial institution issue to their customers so that they can access credit facilities. The card holder can make payment on credit at some point of sale.
Credit cards contain information about your identity and your credit account at bank. They are designed so that this information can be read in ATMs and by electronic card readers in shops. The information can also be used online.
Credit cards incur some interest which starts a month after the payment was made. Most banking institutions issue these cards to facilitate an increase in revenue and customer loyalty.
How are the credit cards read? These cards contain magnetic strips and also shiny metallic chips. When the strip or the chip comes into contact with an electronic card reader or inserted into an ATM, they are ‘read’ by the technology. Most credit cards require you to enter a PIN (personal identification number). When they are used online, credit cards are used slightly differently: here, you just need to enter your card’s long number, security code and usually the expiry date in order to make a purchase.
After the expiry date of your credit card, you will no longer be able to use it.
Credit cards are prevalent in the world as many people prefer using them due to some of the advantages that have. Below are the advantages and disadvantage of the use of these cards.
1. Enables the holder to pay on credit. This card enables the card holder to make payment at the point of sale even when they don’t have money in their bank account.
2. Helps in handling transaction disputes. Most institutions that give credit cards will come to your rescue when there is disputed transaction.
3. The card is convenient to use for large amount of money. Unlike the use of cash, which limits the amount you can pay; the credit card can be used to pay large sums of money with no limitation.
4. Helps in accessing instant loans. When you run out of cash and you don’t know where to get some money, a credit card will help to get a short-term loan.
5. It’s light to carry around. The weight of the card is negligible hence you will conveniently when travelling.
6. Helps in tracking your credit transactions. You can get the transactions you have made by requesting for a statement, hence clarifying where you have doubts.
7. Increases customer loyalty. The customer tends to love a place they can get credit facilities. This means that they will remain loyal to the financial institution.
8. Helps the customer to get Discounts. Many credit card institutions offer discounts to attract people to use their cards. The discount is based on the amount you are purchasing.
9. Provides security from theft. Credit cards cannot be used by any other person without the holders’ permission making it difficult for your money to be stolen.
10. They help in time-saving. You don’t have to waste time going to the ATM to withdraw money to make a payment.
1. They are prone to fraud. Many people have had their cards hacked and large amounts of money added to their accounts.
2. Promotes impulse buying. As long as you have the card, you are prone to buying what you had not planned for. Further, you forget to keep control over your expenses while paying through a credit card.
3. Convenient for the literate in the society. The card is given to the rich and the literate living out the poor and the illiterate.
4. Can only be used in selected points of sale. These cards are not accepted in all points of sale meaning you will be inconvenienced is some shops or supermarkets. Thus, you should always carry some cash, even if you plan to use a credit card.
5. They charge some interest on the card. When you pay money by using a credit card, you are in reality burrowing money from the bank. On the burrowed amount, the bank or the issuing institution will charge interest. This means that you will have to pay more than the amount you used.
6. There are increased chances of financial institutions losing money. If the customer is unable to pay the debt, the financial institution can incur losses.
7. Promotes bad credit. Since one can access loans instantly, many people may take too much money that they can’t be able to pay in/on time.
8. More cost in case it is lost. When you lose the card, you will have to pay some amount of money to get a replacement.
9. Used to pay only large amounts of money. It’s not suitable for payment of a small amount in your neighborhood shop.
10. Promotes excessive use of money. Since you cannot see the money being depleted, there are chances that you will misuse your money thinking that you still have more.
Conclusion: Credit cards are good to use but one has to be careful when doing so. Keep it safe and ensure nobody knows your PIN number to safeguard your money.