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Credit Cards
Plastic cards created a revolution in personal finance.
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When credit cards were introduced in 1951, people were able to handle their personal
finances in a dramatically different way. They didn't have to wait for a paycheck to
reach the bank before they could make a purchase. And they didn't have to make a new
arrangement every time they needed access to money. By having a one-time credit application
approved, they could hand over a plastic card instead of cash or a check, walk away with
the goods, and if necessary pay over an extended period of time.
That doesn't mean cards created credit. They just made it easier to use, and available
to more people. |
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VARIATIONS ON A THEME The plastic cards in your wallet may all look alike, but they don't all
work the same way. Chances are, some of them aren't technically credit cards.
Credit cards, including American Express Blue, Discover, MasterCard, and VISA, let you
charge purchases up to a preset dollar limit, called your available credit or credit limit.
That amount can range from $500 to $10,000 or more per card. You can pay back the amount
of credit you've used in full, or at your own pace, provided you pay the minimum due each
month. Once you repay an amount, it's again available for you to use.
Charge cards, including American Express, Diners Club, and Carte
Blanche, let you charge purchases but require you to pay your bill in full
each month. If you fall behind, they may charge interest, block use of your
card, or both. With these cards, you aren't given a credit limit, though
you may sometimes find that no further charges will be approved if you have
a large outstanding balance.
Debit cards aren't credit cards at all. They're more accurately check replacement cards
that allow a retailer to debit your bank account directly for the amount of a purchase.
BEFORE CREDIT CARDSLayaway plans, which were once common, let you pay a small
amount each week against the purchase price of clothing or a piece of furniture,
for example, which the merchant held until you paid off the cost. But if winter
came before you finished paying for your coat, you'd still be cold.
Department stores provide charge cards that let you make purchases within that
particular store and make a single monthly payment. In the past, you generally
had to pay in full, or you could no longer use the card. And you couldn't use
it across the street, let alone around the world. Today, however, most charge
cards work like credit cards, though they're still limited to a single retailer
or affiliation of stores.
Many retailers in the US and around the world accept both credit cards and
charge cards, while some accept only one or the other. In fact, most of the
major cards are so widely accepted that they have reduced your need for separate
cards for different retailers, and the hassle of multiple bills.
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CREDIT NETWORKSVISA and MasterCard are payment networks that handle trillions of
dollars of credit and debit card transactions around the world.
Most merchants that accept one of these cards accept both, so from a purchasing
perspective there's little difference between them. But some banks have stronger
relationships with one or the other network or with American Express and may offer additional benefits for using a particular card.
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© 2006 by Lightbulb Press, Inc.
All Rights Reserved.
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