Your Retirement Center
Credit Cards

Plastic cards created a revolution in personal finance.

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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Credit Cards
1. Account number
The first six digits show the company that issued the card. The next four identify region and branch information. The next five are your account number. The final one is attached as a check for extra security protection.

  2. Customer service number
You can call the customer service number if you have any problems or need information about your account.
     
3. Holographic image
An image found on most cards is a special design using a color foil and ultra-violet ink invisible to the naked eye. Merchants can scan the card under an ultra-violet lamp to see if the card is authentic or have the customer insert the card in a point of sale reader.
  4. Magnetic strip
The magnetic strip houses specific information about your account. MasterCard, for example, uses two tracks. Track 1 holds your name, expiration date, card type, and data such as your PIN and credit limit. Track 2 holds your account number, start date, and other discretionary data.
5. Expiration dates
Cards are usually valid for between 12 and 36 months. In many cases, a new card is issued about 30 days before the expiration date.

   


It may be a smart idea to use a couple of cards — one with a low interest rate that you use for major purchases you pay for over time and another for regular purchases that you pay off in full each billing period.

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 and Diners Club, 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.


SMART CARDS
A smart card, sometimes known as a chip card, looks like a credit card. But instead of charging with it, you spend the value, or amount of money it holds, by using your card in any terminal that accepts it. When you've spent it all, you can replace the card or add value to it.

BEFORE CREDIT CARDS Layaway 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.
 
HOW ONE CREDIT CARD WORKS
When you use a VISA card, you initiate a series of steps that insure that the merchant is paid and you are charged.
  1. When you make a purchase, the merchant gets the amount approved, usually by passing your card through an electronic approval machine. When you sign the receipt, you are agreeing to pay the charge.

  2. The merchant deposits the receipt in his or her bank, which credits the merchant's account and sends the transaction electronically to VISA.

  3. VISA processes the transaction, crediting the merchant's bank and debiting the card issuer's account.

  4. VISA notifies the card issuer electronically that the transaction has occurred.

  5. The card issuer bills you for the purchase. Many retailers don't mind the fees they pay for accepting credit cards because people tend to spend more using a card than they do when they pay with cash.


 
CREDIT NETWORKS VISA 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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