What Is a Credit Card?

A credit card is a thin rectangular piece of plastic or metal issued by a bank or financial services company that allows cardholders to borrow funds with which to pay for goods and services with merchants that accept cards for payment. Credit cards impose the condition that cardholders pay back the borrowed money, plus any applicable interest, as well as any additional agreed-upon charges, either in full by the billing date or over time.

In addition to the standard credit line, the credit card issuer may also grant a separate cash line of credit (LOC) to cardholders, enabling them to borrow money in the form of cash advances that can be accessed through bank tellers, ATMs, or credit card convenience checks. Such cash advances typically have different terms, such as no grace period and higher interest rates, compared with those transactions that access the main credit line. Issuers customarily preset borrowing limits based on an individual’s credit rating. A vast majority of businesses let the customer make purchases with credit cards, which remain one of today’s most popular payment methodologies for buying consumer goods and services.

KEY TAKEAWAYS

• Credit cards are plastic or metal cards used to pay for items or services using credit.
• Credit cards charge interest on the money spent.
• Credit cards may be issued by stores, banks, or other financial institutions and often offer perks like cash back, discounts, or reward miles.
• Secured credit cards and debit cards offer options for those with little or bad credit.

What is a credit card annual fee?
The annual fee on a credit card is the fee charged by the card issuer to extend the credit card to you. Some cards don’t charge an annual fee, but others—most often cards that offer rewards or incentives like cash back—can charge annual fees ranging from 500to 7000.

Types of Credit Cards
Most major credit cards—which include Visa, Mastercard, Discover, and American Express—are issued by banks, credit unions, or other financial institutions. Many credit cards attract customers by offering incentives such as airline miles, hotel room rentals, gift certificates to major retailers, and cash back on purchases. These types of credit cards are generally referred to as rewards credit cards.

To generate customer loyalty, many national retailers issue branded versions of credit cards, with the store’s name emblazoned on the face of the cards. Although it’s typically easier for consumers to qualify for a store credit card than for a major credit card, store cards may be used only to make purchases from the issuing retailers, which may offer cardholders perks such as special discounts, promotional notices, or special sales. Some large retailers also offer co-branded major Visa or Mastercard credit cards that can be used anywhere, not just in retailer stores.

Secured credit cards are a type of credit card where the cardholder secures the card with a security deposit. Such cards offer limited lines of credit that are equal in value to the security deposits, which are often refunded after cardholders demonstrate repeated and responsible card usage over time. These cards are frequently sought by individuals with limited or poor credit histories.

Similar to a secured credit card, a prepaid debit card is a type of secured payment card, where the available funds match the money that someone already has parked in a linked bank account. By contrast, unsecured credit cards do not require security deposits or collateral. These cards tend to offer higher lines of credit and lower interest rates vs. secured cards.