A credit card is a payment card, issued by a lending institution, which allows customers to make purchases that can be paid for in the future.
They are convenient and flexible to use on an ongoing basis, however, if you don’t repay on time, you may face late payment fees as well as the interest that accrues on your credit card balance.
Before credit cards as we know them today, the only form of credit card was a merchant-issued revolving credit card accepted only by a few large retailers. There were several attempts from banks to issue credit cards to their account holders, but consumers didn’t want to use a card that few merchants would accept, and merchants didn’t want to accept a card that few consumers used. This cycle was not broken until 1958 when the Bank of America launched the BankAmericard, which became the first widely issued credit card and is now commonly known worldwide as Visa.
Prior to the computerisation of credit card systems in America in 1973, using a credit card was a complicated affair. For each purchase the merchant had to call their bank, which would then contact the credit card company to check the customer’s details and balance.
There are many types of credit cards on the market and choosing what’s right for you will depend on your credit score, why you need it and how much you can borrow responsibly. Typically credit cards are useful for managing short-term credit and protecting your purchases.
This type of credit card offers incentives in the form of retailer discounts, cashback, travel miles and other rewards. It is important to ensure that these rewards are sufficient to outweigh the costs associated with using this type of card, often in the form of annual fees and higher interest.
Credit-builder cards are suitable for people who do not have any credit history or have a poor credit score and are considered a high-risk borrower. The credit limit on these cards is often low and the interest rates are higher than normal credit cards. The terms of use of the credit card may become more favourable as you improve your creditworthiness through repaying your debt on time.
Making travel plans is exciting, but you may be hit with unexpected hefty fees if you use your credit card to book flights and hotels or use your card abroad. Most credit and debit cards will charge you a fee for every purchase or withdrawal made abroad. The travel card reduces the risk of the purchase and makes it more convenient to spend money abroad. It offers excellent exchange rates and doesn’t charge fees for every transaction. The interest rates on these cards may be higher but settling the debt on time will avoid high charges incurring.
A money transfer card helps you to move the debt from your bank account to your money transfer credit card. The debt may be easier to pay off this way as money transfer credit cards offer 0% interest rate for a set period of time and therefore if repaid within that period, the overall amount due will be lower. There is often a fee associated with using this card.
Balance transfer cards are specifically designed to help you repay your debt faster as they offer 0% interest rate for a set period. They are usually only available to customers with excellent credit ratings. By transferring your debt from a credit card to a balance transfer card, usually for a small fee, you may be able to repay the debt faster through the money you have saved in interest fees.
Purchase cards are typically useful for spreading the cost of a large purchase. These cards offer an interest-free period as long as you are able to make the minimum repayments and stick to the terms of the credit. The ideal scenario is if you can repay the debt within the interest-free period. As with balance transfer cards, obtaining a purchase card will usually require that the borrower has a high credit score.
This card offers the benefits of both products into one and is usually only available to borrowers with an exceptional credit score. It is useful in spreading the cost of a large purchase and keeping the interest rate low.
Credit cards and credit lines can both be used as an ongoing form of credit product.
When using a credit card, you do not need to transfer money out of the account, but with a credit line you need to transfer the amount you wish to borrow into your own bank account. You will need to transfer money back into both the credit card account and the credit line account to make your repayments.
To receive a credit card, you may need to complete a lengthy application process. In contrast, the lending decision for a credit line can often be made in minutes.
Polar Credit provides access to credit in a fast, easy and transparent way. It is a revolving credit facility that can help with your monthly expenditure.
There are many different types of credit products available on the market and some will be more suitable than others for your circumstances. If you’re unsure about borrowing from a credit card, you could also consider these other forms of borrowing:
How would I benefit from a credit line?
A Beginner’s Guide to Credit Scores
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