What is Credit Card? Definition of Credit Card.

A credit card is a payment card issued by banks and other financial institutions to their users for paying for goods and services. The issuer of the card creates a revolving account which grants a line of credit to the cardholder after which cardholder can borrow money for payment. It simply combines payment services with credit. Credit card charges interest and generally used for short-term financing. The interest on card usually begins one month after a purchase is made. The borrowing limits are pre-set by banks and financial institutions according to the customer’s credit rating.

Credit cards are convenient substitute for money and one can shop anything with these cards. Customers are supposed to pay for credit cards within 30 days of purchase for avoiding interest and penalties. Credit cards allow the customers to continue their balance of debt. The credit cards also involve a third-party entity which pay the seller and is reimbursed by the buyers. Credit cards are easily available and acceptable everywhere and they are widely used for online and offline shopping.

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Advantages of credit cards

  1. Credit cards offers the most easiest and convenient way of shopping to consumers because they are accepted everywhere. If you want to buy something that is expensive and you cannot pay the entire price at once then also credit card offers you to pay a limited amount on every month.
  1. Some credit cards offers 0% period which means that consumer can be benefitted from an interest-free loan.
  1. Some credit cards also offer incentives to their consumers such as cashback, loyalty points, and air miles for maintaining good relations with them.
  1. Credit cards can also provide financial safety sometimes when you do not have enough cash or saving for covering an unexpected expense.

Disadvantages of credit cards

  1. The credit card can be very useful for you if you are paying your credits in time otherwise it can affect negatively to your credit scoring and you will not be able to enjoy its incentives and rewards.
  1. The biggest drawback of credit cards is that they encourage people to spend more than what they actually have and this increases debt on their credit cards. If you do not pay these debts in time you will be charged with high rates of interest by the credit card company.
  1. Using a credit card for withdrawing money can cost a cash advance fee worth around 3% of the total transaction amount.
  2. Some business also applies surcharge while paying with credit card. MasterCard and Visa products usually charges 0.5 to 2% of the total transaction amount.

Types of credit cards

There are three types of credit cards i.e. Major Credit Cards, Store Credit Cards, and Secured Credit Cards.

  1. Major Credit Cards

The Major Credit Cards offers reward programs and incentives to customers. The interest rate charged by these credit cards is high after certain credit limit utilization. Issuance of Major Credit Cards depends on the timely payments made by the consumer and his or her purchase history. Major credit cards are Visa Card, Master Card, and Reward Card.

  1. Store Credit Cards

Store Credit Cards are usually issued by retailers or stores to their consumers after they make some purchase with them. Retailers and stores usually offer discounts or cash backs on such cards after some specific period of time or during holidays for maintaining their good relations with consumers and encouraging customer’s loyalty.

  1. Secured Credit Cards

Secured Credit Cards are issued to customers with negative or bad credit ratings. These credit cards are generally issued when customers submit an application for depositing some money in the bank that has been set as an initial limit of customer. These cards can be later upgraded to normal credit cards. Goods and services can be purchased using these cards.


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