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How exactly do credit cards work?

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How exactly do credit cards work?

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  1. Whenever you apply for, and use a credit card given to you by a bank, or any other financial institution, they are actually lending you money.

    This means that every dollar (or cent) that you use from the credit card will have to be repaid, with interest.  Interest rate is usually stated on the application or on the form you signed.

    Because of the nature of credit card, you generally have to agree to the issuer's terms by signing an application form, even if one was sent to you in the mail.

    Before you can use a credit card, you must activate it, usually by calling the company that issued it.  They usually have restrictions to prevent fraud, such as not allowing your first transaction to be a cash advance.  Scammers can steal your identity and apply for credit card in your name, then get cash advance.

    If your credit is bad, or you have no credit, there are companies that will let you open a deposit-secured credit card, and restrict your spending limit to the amount you deposited with them.  As you repay over time, they may gradually allow you to spend more than you deposited, but you will still have to pay back all you have used, plus interest.

    Hope that helps,

    From time to time, I publish useful and related information at my blog at: http://bloss2.blogspot.com

    Anthony


  2. Credit cards are a form of unsecured debt, meaning the lender (the credit card issuer) takes you at your word that you are going to repay the loan.  To make this judgment, the lender considers your credit score, your income, your occupation and job history, the other debt you may have, and your credit history.

    An agreement among member banks belonging to Visa and MasterCard allows you to purchase consumer goods and servcies from any participating merchant.  In return, the merchants pay a percentage of the transaction amount to Visa or MasterCard as something called the interchange fee.

    American Express and Discover work similarly.

    Issuing banks make most of their money on fee income these days, so you have to be a very careful consumer in order to not be soaked by outrageous fees.  Also, since 1978, the concept of "usary" has largely been discarded, meaning that it is no longer illegal to charge unconscionably high interest rates.  That 0% offer can quickly be turned into an annual interest rate of 29.9% or higher for just about any reason the credit card issuer offers you and only a 15-day notice.  And, this interest rate change applies to all your existing debt, not just your new debt.

    Credit cards offer many conveniences, but there are serious downsides.  Many people get in over their heads, and ruin their financial futures by using credit cards.

  3. A credit card is a system of payment named after the small plastic card issued to users of the system. In the case of credit cards, the issuer lends money to the consumer (or the user) to be paid later to the merchant. It is different from a charge card, which requires the balance to be paid in full each month. In contrast, a credit card allows the consumer to 'revolve' their balance, at the cost of having interest charged. Most credit cards are issued by local banks or credit unions, and are the same shape and size, as specified by the ISO 7810 standard.

  4. You buy something with the credit card and at the end of the month you will get a bill that equals the total amount of money that you spent.

  5. its like a bank in your hands that u have to pay

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