Types of Credit Cards
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Unsecured credit cards
This is the most common type of credit card issued by banks and other
lending institutions. 'Unsecured' means that the limit on your card
is independent of any assets or deposit of funds that you tie specifically
to the credit card limit. In other words, the bank will assess your
ability to service the payments on the card and will set the limit of
the card accordingly, and you have no requirement to actually deposit
any funds to ‘secure’ the limit. This is the most common
form of credit card available on the market today.
Secured credit cards
Secured credit cards are more likely to be used by people who have
no credit record or, more likely, a bad credit history.
Secured credit cards, or partially secured credit cards, require the
card holder to deposit sufficient funds to cover all, or part, of the
credit limit that the bank is willing to give. The amount that needs
to be deposited will vary from person to person, bank to bank, so anyone
considering a secured credit card should look very closely at the terms
and conditions of use for any card they choose. Because of the susceptibility
of people needing secured credit cards, some lenders have been known
to impose ridiculous charges and fees as part of their Terms of Contract
with the card holder. If you are in the market for such a card, read
very carefully the contract that you are about to enter into.
Charge Cards
Charge cards differ from credit cards primarily in that with a charge
card you are expected to pay off the entire amount of the account as
soon as the bill arrives. Generally speaking there are no facilities
to extend the credit over a period of time as with a general credit
card, although there are exceptions to this rule depending on the charge
card you use. If you fail to pay the full amount owing on the card when
the bill arrives, you’ll generally have a grace period (with interest
charged of course) before your account will be terminated and referred
to debt collection agencies or the courts.
Charge card companies generally make their money from charging a fee
to the merchant (the provider of the goods or services that you buy),
and from whatever annual fees and other administration fees that they
charge the cardholder.
Diners Club and American Express are two typical charge cards.
Debit cards
As you may have derived from the name, Debit Cards are the opposite
of Credit Cards in the sense that you can only spend what you already
have on deposit in your account. Debit cards work exactly like general
ATM (Automatic Teller Machines) cards but generally speaking are welcomed
in all places where credit cards are taken.
One of the main advantages of using a Debit Card, as opposed to a Credit
Card, is that you can only spend what you have, and the money is withdrawn
from your account immediately – so no interest is payable on the
purchase over the long run. One of the main disadvantages to using a
debit card however is that as a consumer you don’t have the level
of protection from fraud and contested purchases (disagreements with
the quality of goods or level of service) that typical credit cards
offer. This is something to bear in mind if you are contemplating using
a debit card for online purchases.
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