What are Credit Cards?

by : Prerna Joneja



A credit card is a financial agreement between the card holder and the bank or credit union. This card contains a magnetic strip that contains the personal identity and secured information of the holder. This card also contains the photo of the card holder and is used at the money dispensing machines (Automated Tailor Machines or ATM's).

It is small card that contains the complete financial details of the customers. The terms of the deal are set by the lender which include how often payments are to be made, what will be the minimum payment, and what the rates of interest that will be applied are. The borrower has to pay not just the borrowed amount but also the additional charges based on the rate of interest.

Credit card is a beneficial tool for the customers. Some of the benefits are:

  • Emergency Protection: If you're ever in an emergency, you'll see how helpful a credit card can be. Whether you're stuck with medical bills or auto repair fees, these credit cards can be used anywhere and at anytime.


  • Convenience: There's no need to carry money in the wallets. Just the plastic card is enough. You can buy anything what you want at any time even if you don't have cash with you.


  • Building Your Credit: If you dream of buying a house or really nice car, you need to have a credit history that demonstrates that you can take on debt and pay it back on schedule. You can use a credit card to make small purchases and build up your credit score by paying your statement on time.


  • Security: Large amounts of cash can be lost or stolen. But if your credit card goes missing, you can have the account cancelled and a new card issued without losing any of your money.


Credit cards can help you improve your daily lives if you use them responsibly. But the temptation to live beyond your means and max out your credit limit can be a problem. That's why it's important to think of your credit cards as tools that you can use.

Some of the important things to be kept in mind that will help you to manage your credit card debt are:

  • Go Back to Cash: If you're having trouble keeping your credit card in your pocket, switch back to cash for a while. Using cash for a bit will help you remember that little purchases add up.


  • Make a Budget: The first step to financial freedom is a realistic budget. Sticking to a budget will help you from splurging with your credit card.


  • Get Credit Counseling: If your debt gets out of control, talk to someone! Ignoring your credit problems won't make them go away - it will only make them worse. Talk to your parents or a trusted friend who may be able to help, or consider getting help from a group or institutions that can help you with your problems.


  • Set a Limit: Many analysts recommend keeping your credit card balance around 30% of for maximum benefit in the formula used to calculate your credit score. A promise should be made to yourself that you will not exceed the limit and the credit card debt will not go out of control.


There are many benefits of having credit card. If you understand that credit card money is just like loan, things would be better. If you aim to clear your every month, it will be beneficial else the balance will have interest charged on it and there can be all the consequences that occur with loan.