Credit Cards


Charge cards
Major characteristic

A charge card is called so as it does not charge any interest but requires the user to pay the balance in full upon receipt of the statement at the end of a calendar month. A charge card also does not allow cardholders to carry a balance from one month to the next unlike a credit card.

How is a charge card different from credit card?

The term ‘charge card’ is sometimes used interchangeably with ‘credit card’ but the latter’s characteristics are quite different in that it involves a revolving account which allows the user to carry the balance forward into the succeeding month(s) as a loan that accrues interest. Although some charge cards may allow the user the flexibility of spending the desirable amount, a due date is stipulated for the payment of the balance amount. Ideally, charge cards entail more qualification requirements such as high credit scores and income levels.

Higher spending limits

While it is similar to a credit card in other aspects, the major benefit offered by a charge card is that it has much higher, often unlimited, spending limits. Due to this fact, such cards do not generally involve finance charges or require minimum payments to be made unlike other regular credit cards. Costs usually include a set fee for the card along with heavy penalties on any unpaid balances. Certain restriction on the card’s usage may also be imposed, or in the extreme case, it could result in the cancellation of the card.

No impact on credit score

As a charge card does not does not have a defined credit limit, the user’s credit score is not affected and hence cannot be used to calculate her credit utilization ratio. However, it is important for charge cardholders to ensure they pay the annual fee involved, because if a charge card is managed properly, it will contribute towards the payment history and the duration of credit history.

Co-branded credit cards

Cobranded cards are credit cards offered by financial institutions in association with a particular firm such as an airlines carrier or a retail outlet. Their usage is similar to other regular credit cards However, additional benefits like earning travel points and special discounts make co-branded credit cards a hit among credit card users. Co-branded credit cards are issued across several sectors including travel, telecom, retail, and entertainment, among others. The launch of new products each year has given a push to the use of co-branded credit cards.

Frequency of usage

Among the trends in the Indian credit card industry in the past several years, co-branded credit cards have shown the biggest increase in usage. As almost every bank offers basic credit cards nowadays, it provides a means to distinguish one bank’s products from its fellow competitors. Consumers can also avail of attractive deals in different product niches as also is a good reason to secure multiple co-branded credit cards.

Common features of co-branded cards
International

The common feature of co-branded cards is that they are international in nature. In other words, they can be used globally and the billing is in Indian rupees. Other standard features include flexible payment plans and 24-hour assistance. This also accounts for the wide acceptability of co-branded cards.

Reward schemes

Co-branded cards come with attractive reward programs. A cardholder earns credit points depending on the frequency of the usage of the card. The reward programs are basically aimed at inducing loyalty in the customers. The efficacy of reward schemes depends on how often one uses the card and the usefulness of the gifts on offer.

Rebates and affordability

Co-branded cards can generally be issued more at cheaper rates than private label retail cards. Besides, there are a lot of incentives in the form of discounts and rebates which makes co-branded cards a hot property among credit card users.

Credit cards: a brief introduction

Simply put, a credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services.

Origin

The modern credit card is the successor of a range of merchant credit schemes that were existent in the U.S. during the 1920s. Such schemes were usually operated by hotel chains and oil companies, and customers were issued cards to make purchases at those businesses.

Purpose today and characteristics

Credit cards nowadays are issued by banks and financial institutions such as credit unions to users as a system of payment allowing them to buy goods and services for which the cardholders are billed periodically. Credit cards have a limit on the amount of credit money cardholders can avail of and the ceiling depends on the card category.

Physical characteristics of a credit card

The cards come in thin plastic sizes and contain identification information such as a signature or a photograph of the user. All credit cards have distinct numbers printed on both the obverse and reverse sides. They are usually printed in multiples of four and grouped into pairs but their structures vary according to the issuer. The numbers usually signify the System Number, the Bank Number, the Account Number and the Check Digit.

Another key feature of a credit card is a magnetic stripe (magstripe) on the reverse. The magstripe is made up of tiny iron-based magnetic particles in a plastic-like film. Each particle is actually an extremely small bar magnet and can be read by magstripe readers used in shops, ATMs and computers at banks. Credit cards also contain the validity period after which a new card can be applied for as replacement.

Premium credit cards

Premium card users are meant for high-profile users who love to use their credit cards on travel and other enjoyments. Although the fees for such cards are high, premium credit cards have gained popularity for the many benefits that they offer upon their usage.

Benefits and fees

Premium category credit cards offer incentives and benefits beyond that of a regular credit card in a bid to attract high-end customers. The spending pattern on such cards is usually higher than other credit cards offered by issuers. Gold and Platinum cards can be cited as examples of premium credit cards and they offer cash back, reward points, travel upgrades, and other rewards to cardholders. These cards generally charge higher fees and usually have a minimum income and credit score requirements.

Cash back rewards

Cash back rewards are given out to premium credit cardholders as a percentage of purchases made using the card. For instance, for each rupee spent, a cardholder may receive a cash reward of 1%. Cash rewards are also given out in specific increments once a cardholder uses a certain sum. It can be a cash reward of Rs 25 for having used Rs 2,500 with the card. The points reward system gives out a certain number of points for each rupee used for purchases and can be redeemed for travel, merchandise, gift certificates and even cash.

Other rewards

Some premium credit cards also reward users with air miles which are redeemable for airline tickets. The number of miles rewarded varies by credit card while the number of air miles needed to purchase a flight depends on the airline. Rewards as discounts on prices of goods and services are also available for premium credit card users.

India market

Experts have forecast that the premium credit card market in India has a robust future and is set to witness outstanding growth in the next few years. According to estimates, with the incomes of middle-class households rising and a trend of changing consumer preferences, the premium credit card market will expand at a compound annual growth rate of nearly 59% during fiscal year 2010- 2013.

Prepaid credit cards
Meaning

Financial institutions issue prepaid credit cards that are pre-loaded with funds and can be used like a normal credit card. But it works the opposite of how a normal credit card functions, because instead of buying goods and services with credit, a user buys things with funds that have already been paid. In other words, prepaid credit cards are branded gift cards with significant balances and can be used in place of credit cards wherever the latter find acceptance.

Benefits

A prepaid credit card allows a user the convenience of a credit card without making her go into debt. Such cards can be used to purchase items online or in person, and as they comprise funds that have been preloaded before being used, a user never spends more money than what she has.

Prepaid cards can serve as effective tools to teach school going children about credit cards and money management without them having to irresponsibly shore up charges beyond their financial means, or for those who find it a difficult challenge to manage their finances and have a knack of ending up with huge amounts of credit card debts.

Easy to maintain

Maintaining a prepaid card is easy and is similar to managing a current or savings account. The user need not worry about having to pay charges such as interest, finance charges, or penalties for late payments. Also, unlike regular credit cards, the question of having to maintain a revolving balance does not arise.

However, a prepaid credit card does not help the user establish or improve his credit history as its usage does not reflect her borrowing or repaying habits.

Secured credit cards

A user with low or poor credit can opt for a secured credit card. A secured credit card is backed by a savings account which serves as collateral on the credit available with the card. Money has to be deposited and held in the account that supports the card. The limit offered is based both on the user’s credit history and the amount deposited in the account, with the limit being a percentage of the deposit which can be anywhere between 50% and 100%.

Key benefits

The key benefit in using such cards is it allows the users to rebuild or establish a credit history which could help them gain access to unsecured credit cards or other forms of credit finance in future.

Another benefit a secured credit card provides is that it allows a user to purchase products that can only be paid for with credit cards as is the case with some online retailers.

Functions

The functioning of secured credit cards is similar to regular credit cards in that purchases made reduce the available credit while monthly minimum payments are required to be made on the outstanding balance. Some banks offer grace periods on secured cards which allow the user to avoiding paying finance charges if the balance is paid in full each month. Late payments and overdraft may also attract penalties.

Fee structure

Secured credit cards often charge more fees than unsecured ones including the annual and application fees. Some also charge monthly account fees and fees for raising credit limits. Issuers also review secured credit card accounts after a period of time and may also offer the user a switchover to an unsecured credit card if they deem the account satisfactory.



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