As markets mature, credit cards tend to replace cash and checks as the most common payment mechanism, thanks to their greater security, convenience, and widespread acceptance.
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What is a credit card? A credit card is a plastic card with a magnetic strip containing data, and is a financial instrument allowing the holder for pay for goods or services on credit and in lieu of cash. While credit card companies provide the infrastructure to settle the transactions, the cards are issued by banks and increasingly by retail outlets and other consumer-oriented entities. If the bill is not settled within the allotted time, a person’s credit can be negatively affected. In these cases, a credit repair company can be helpful to overcome bad credit issues.
Credit cards allow customers to buy goods and services immediately and then settle the bill for aggregated transactions at a later date. Debit cards, on the other hand, allow customers to buy using funds directly debited from their accounts.
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Visa and Mastercard are the two largest credit card companies worldwide. Both were originally formed by consortia of banks. American Express is both a credit card provider and a bank. JCB is popular in Japan and Diners Club is also a major worldwide provider.
A Quick History of Credit Cards
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The concept of credit dates back to the late nineteenth century. This is when symbols of credit started being used by merchants while selling goods without the buyer having the necessary cash in hand. In fact, American lawyer and author Edward Bellamy referred to a 'credit card' in his bestselling novel Looking Backward, which was published in 1888.
According to Encyclopedia Britannica, credit cards began being used in the US during the 1920s, with oil companies, hotel chains and other individual firms issuing these cards to their customers. In the late 1930s, companies that issued credit cards began accepting cards issued by other firms as payment.
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The 'Charge-It' card from Flatbush National Bank of New York was the first bank card to be issued in 1946, but it could only be used locally. American Express issued the first national charge card in 1958.
Today, credit cards can be used globally, can involve a number of third parties, can be used for a wide number of purchases and do not require the cardholder to maintain an account with the issuing entity.
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How Are Credit Cards Used?
Once a credit card has been issued, the cardholder can make purchases within the prescribed credit limit. Within seconds, the provider of the goods or services can verify the validity of the card electronically. Each credit card has a unique personal identification number (PIN), which is like a password that authenticates the card. Upon making the purchase, the card issuer pays the merchant. At regular intervals, the cardholder receives credit card statements that outline all the purchases for which payments have been made using the credit card. The cardholder makes the payment by the due date to the issuing company. If the cardholder defaults on making a payment, interest is charged on the outstanding amount. Usually the interest rate is fairly high. It is normally possible nowadays to make a credit card payment online and to find the best credit card offers online.
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