Credit cards refer to the small pieces of “plastic” given to consumers for a particular payment system. A bank or credit card company is giving these consumers a credit line that they can use to make payments and purchases. For each of the charges, there is usually an up-to-30 days grace period in which there is no interest rate charges added if the balance is paid in full; otherwise, the credit card company will charge a predetermined interest rate on any balance not paid off. Thus, credit card companies are offering consumers a chance to revolve their credit and balance at the cost of interest rate charges.

Credit cards offer consumers an easy and convenient way to make purchases and payments for items and services, without always having to carry around a lot of cash on hand. It is basically of no risk or downside as long as the consumer pays off the balance each month. The problem area is for those consumers who have a tough time controlling their spending within their means that will rack up credit card debt at possibly very high interest rates.

For merchants, being able to accept credit cards for payment for goods and services offers many benefits. This includes transactions with credit cards as a very secure form of payment since the credit company commits itself to paying the merchant even if the customer defaults on a payment. This is contrasted with a check where the check may bounce if the customer has insufficient funds. Credit card security also offers protections for both the consumers and merchants against fraud and discourages theft of large amounts of cash lying around. Merchants also do not have to check into the credit rating and history of any of the customers since each credit card company will have done that. The cost of accepting credit cards for merchants is usually a small fee for each transactions plus possible a percentage of the transaction.

To attract customers, credit card companies will offer different incentives to prospective and current customers, such as cash back, airline miles, gas rewards, and low or even 0% introductory rates. To read more about types of credit card incentives, go here.

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There are other types of card payment systems resembling credit cards. One such card is the charge card where there is no revolving of balance owed and the balance must be paid off each month. Another is the debit card, which can be used at basically all locations which accept credit cards, where the balance used is deducted directly from your bank account and there is no revolving balance. This usage is similar to that of a prepaid credit card, where the amount spent is deducted from a prepaid balance amount that is stored for card use. Lastly, a secured credit card is the same as a credit card except the consumer has to deposit an amount before hand that is closely related to the amount of credit line they want; these are instruments used by those consumers who may have poorer credit and who might otherwise not quality for the more traditional credit card.