A credit card is a plastic card with a magnetic strip that can be swiped and used as payment for a good or service. There are four major credit card companies, however nowadays many department stores and private institutions offer their own credit cards. The credit card company will evaluate each individual on their past credit history in order to determine the limit that the card may carry. Once the card reaches its limit, no more purchases can be made until the balance is paid down.
A credit card is not necessarily designed to send people into debt, or to allow them to live beyond their means. Having a credit card will allow a person to carry less cash in his wallet, which could easily be lost or stolen. If a credit card is lost or stolen, most credit card companies will not hold the card owner responsible - whereas cash would be gone forever.
Credit cards are convenient. Most places nowadays take credit cards, including all of the major fast food restaurants. Credit cards allow people to pay at the pump when getting gas. This allows them to avoid the line inside the gas station or to stay in the car in the rain or freezing, cold weather. Most online purchases are made via credit card, which permits the transaction to process immediately. Having a credit card allows a person to track all of their purchases easily without having to manually record them in a checkbook. Many bills such as cable or phone bills can be charged automatically to a credit card, eliminating the need to write a check and send payment in the mail.
Credit cards can also save the user money. Many credit card companies compete for business by offering incentives for using their card. Some companies offer airline miles or gifts, after a certain amount of points are accumulated on qualified purchases. Other companies simply give cash back based on the amount charged to the card. Credit card companies charge the merchant for every transaction, and as a result they can pass some of those earnings to the user.
Having a credit card also allows a person to establish a credit history. Before making a major purchase such as a car or house, a credit check must be run. If there is no credit history to verify, the loan may be refused. A credit card can prove that the person is capable of paying their bills on time.
It is important to avoid going into debt by overusing a credit card. Credit card companies make a lot of money off people who charge excessively and accumulate a lot of interest charges. Credit cards should be paid in full each month if possible. Paying only the minimum balance is not recommended, as this will only create more and more debt. If used responsibly and occasionally, a credit card can be of great value.
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