What is a credit card?

By Minh Tong Reviewed by Melissa Cook Updated Oct 13, 2022
What is a credit card?

A credit card is a plastic card that gives the cardholder a certain amount of credit to spend. There are many different types of credit cards, each with its own set of benefits and drawbacks.
The most important thing to remember when using a credit card is to keep track of your spending. It is very easy to overspend with a credit card, so it is important to be aware of your limits.
If you are planning on getting a credit card, there are a few things you should keep in mind. First, make sure you understand the terms and conditions of the card before you apply. Second, compare different cards to find one that best suits your needs. And finally, always make your payments on time to avoid late fees and interest charges.

Types of Credit Cards

There are many different types of credit cards available, each with its own set of benefits and drawbacks. Here is a quick overview of some of the most popular types of credit cards:

Cash back credit cards

These cards offer cash back rewards for every purchase you make. The amount of cash back varies from card to card, but it typically ranges from 1% to 5%.

Balance transfer credit cards

These cards allow you to transfer your existing credit card balances to a new card with a lower interest rate. This can help you save money on interest charges if you carry a balance on your credit cards.

Rewards credit cards

These cards offer points or miles for every purchase you make. You can then redeem these points for travel, merchandise, or cash back.

Secured credit cards

These cards require a security deposit to open an account. The deposit is typically equal to your credit limit. This type of card can be helpful for people with bad credit or no credit history.

Business credit cards

These cards are specifically designed for business expenses. They often come with special benefits such as rewards programs and cash back offers.
No matter what type of credit card you choose, be sure to use it responsibly. Only spend what you can afford to pay back, and always make your payments on time. Doing so will help you avoid late fees, interest charges, and damage to your credit score.

Benefits of Credit Cards

Credit cards offer a variety of benefits for both consumers and businesses. Here are some of the most notable benefits:

Convenience

Credit cards are accepted at millions of locations around the world, making them a convenient way to pay for purchases.

Build credit

Using a credit card responsibly can help you build your credit history and improve your credit score. This can make it easier to get approved for loans and other lines of credit in the future.

Earn rewards

Many credit cards offer rewards programs that allow you to earn points or cash back on your purchases. These rewards can be redeemed for travel, merchandise, or cash back.

Protection against fraud

Credit cards come with built-in fraud protection, which can help you avoid financial losses if your card is lost or stolen.

Flexible payment options

Credit cards offer flexible payment options, such as the ability to pay over time or in full each month. This can give you some breathing room if you need to make a large purchase but don’t have the funds immediately available.

Choosing the Right Credit Card

With so many different credit cards available, it can be tough to choose the right one. Here are some things to keep in mind when comparing credit cards:

Interest rate

This is the rate you will be charged for borrowing money from your credit card company. The interest rate can vary widely from card to card, so be sure to compare rates before you apply.

Annual fee

Many credit cards charge an annual fee, which can range from $0 to $500 or more. If you are a frequent user of your credit card, the rewards and benefits may outweigh the cost of the annual fee. But if you only use your credit card occasionally, you may be better off with a card that has no annual fee.

Rewards program

Credit cards often come with rewards programs that allow you to earn points or cash back on your purchases. These programs can vary widely, so be sure to compare the offerings before you apply for a card.

Other fees

In addition to the interest rate and annual fee, credit cards can also come with other fees, such as Balance Transfer Fees, Cash Advance Fees, and Foreign Transaction Fees. Be sure to compare the fee structures of different cards before you apply.

Credit limit

This is the maximum amount you are allowed to charge on your credit card in a given period of time. Credit limits can vary widely from card to card, so be sure to check this before you apply.

Grace period

This is the period of time after your billing cycle ends during which you can pay your balance without being charged interest. grace periods can vary from card to card, but they typically range from 21 to 25 days.
No matter what type of credit card you are looking for, be sure to compare the offers before you apply. By doing so, you can ensure that you get the best deal possible.


minhtong

Minh Tong

Minh leverages decades of experience in marketing, sales management and technology to provide high-level advice and lead new initiatives. Minh has a Bachelor of Science in Business/Managerial Economics from University of California at Irvine. He brings over 20 years of sales and executive management experience to the company and his responsibilities include customer service improvement, professional development, and carrying out communications and marketing. Originally from the east coast, Minh resides in southern California and enjoys spending time with his family, going to the beach, and playing a variety of sports.