Credit Cards: Outline
Introduction
The credit card. It offers people safety, flexibility, and most importantly the ability to spend money that they don’t have on them. But, with all of the power of having a credit card, there is equally as much, if not more danger in having one.
Thesis
Credit cards can be very rewarding, but only when the cardholder knows how credit cards work.
Proof
1- How Credit Cards Are Beneficial
No one wants to worry about being robbed. These days’ credit cards and checks offer
people to carry “money” with them, without having cash. Anyone can use cash and stolen cash is very
difficult to trace. Checks and credit
cards on the other hand have certain security measures that prevent the wrong
person from using them. Not only do
they require a signature, or a pin code, but also any purchase made goes onto
the transcript. If a credit card or a
check is stolen the owner is able to file the theft and is not responsible for
the money spend and it is easier for the police to track down the criminal.
Although credit cards have
been fairly safe before the internet, when online spending began it was easy
for anyone to use any credit card online and they only information that they
would need is the name, number and expiration date. But credit card companies have been able to reduce this
problem. Many major companies have come
up with Internet security features that trace where, when and to whom payments
are made. The ability of the credit
card companies to reduce online theft has increased the popularity of online
shopping and has allowed the Internet companies to succeed (those that are
still around).
Convenience
Credit
cards can also be turned into cash by visiting the nearest ATM. The more ATMs a company has, the easier it is
for cardholders to get money, which makes them popular and it gets people to
spend more money. MasterCard alone have
more than 600,000 ATMs all over the world.
They even have one in Antarctica (however only one).
With the expansion of the Internet,
credit cards have reached into even more homes. Almost all-online purchases require a credit card. The people, who did not need or want them in
the past, now need them if they want to take advantage of online shopping.
Because of online shopping, credit card companies had to upgrade their security. People would not want a credit card if it could be used by frauds to buy things on the Internet. But, with the added security measure, online shopping is a reality and many Internet businesses have succeeded because of it.
How they make money
Credit card users must be
aware of how credit cards work and the specifics of the credit cards that they
have. It is the unaware whom the
companies make all of their money off of.
But, if you do know what you are doing, then credit cards can work out
much to your advantage. By being able
to spend money that you do not have you can purchase things that you want and
still be able to pay the same price for them in a month. That is of course if you properly budget
your money. Some credit cards that have
incredibly low interest, such as the Air Force Academy Graduates Credit Card,
even allow the owner to make money through investments by using that money like
a loan.
Credit card companies need
to have customers not pay their bills on time in order to make money. While a good credit history is what they are
looking for in new customers, they try to get their cardholders to pay late and
give them more interest. One strategy
that they use is to tell a cardholder that pays their bills on time to
"take a month off”, or they will increase the maximum amount that they can
spend. Some people are tricked by
incentives like these and end up having to pay more for their original purchase.
Young Adults
The
credit card companies target young people because most of them have been used
to being able to spend extra money on luxuries. When teenagers enter the real world and have to spend their
income on the necessities they still expect to be able to have all the luxuries
that they could afford when they were supported by their parents. When they get a credit card, they think that
they can spend it like cash and get all of the things that they want. However, many of them fail to budget
properly and monthly credit card bills add up.
When cardholders do not pay back the total balance owed in the first
month, the company makes money.
But,
it is not just young adults who do not fully understand how credit cards
work. In fact, most adults only know
that they need to pay the bill at the end of the month or they will have to pay
extra. But the exact amount extra is
something that must be calculated. Most
people either do not know how to calculate their interest properly or they do
not take the time to.
Uneducated Customers
It
is in the best interest of the Credit card companies to have cardholders who do
not understand how their cards work.
These are the people whom they make money off of.
To the average person a
credit card represents the ability to get something without paying for it. Although they do know that they will have to
pay for it eventually, it offers a sense that you can spend up to the
limit. Most people do not know or
understand how interest works and what APR means. The average person only goes with the credit card that appears to
be the lowest, or offers the best promotion.
Credit
card companies do not want people to learn about credit cards. For example, on the MasterCard Website,
there is a credit card quiz. The
questions are incredibly easy and they give people a false sense of
knowledge. The first question that they
asked is: “Your borrowing should never exceed what percentage of your net
income?” and the possible answers are:
“20%, 100%, or The percentage I need for
entertainment and dining out.”
Even worse is the question: “Mondex Smart cards are
designed as an alternative to:” , not because of the question, but rather
because of the answers to choose from:
“Studying for
quizzes like this___
Cash
and coins for small everyday purchases ___
Your library card ___”
It does not matter whether or not you know what a
Mondex Smart Card is, all you have to do is be able to read the question and
the answers. And if the questions were
not bad enough, the hype about the score is even worse. After getting all of the questions right the
response is “Congratulations. You got 10 questions
correct! You've earned high honors from MasterCard University.” Even getting an eight, they still say that you have
earned high honors from “MasterCard University.” It is obvious that MasterCard does not want people to read about
their credit cards. By having such a
pathetic quiz, they are saying that if you can read, you are ready for the
responsibly of a credit card.
There
are certain things that credit card issuers need inform their customers. These are Annual percentage rate, finance
charges, annual fees, service charges, late payment fees and any other charges
that can be incurred. However, they do
not always make them clear like they are supposed to.
Fine Print
When
signing up with a company the consumer must be careful. Some companies have hidden agreements. Some have a maximum monthly payment that
doesn’t allow people to pay for their whole bill for the month. This forces the customer to pay the interest
whiter they could have afforded the bill or not. Also companies sometimes want people to use their card for a
certain amount of purchases within a month.
Some companies also require the cardholder to pay a monthly fee, in
addition to the interest on the balance.
Teaming up/ Promotions
Another
way that they get people to sign up for there card is buy teaming up with
certain companies and giving discounts.
Most of them give out free gifts just for signing up for a card, whether
they accept your or not.
One
incentive that is use to get people to use their cards is sky miles. This program that was started by Delta gives
cardholders a certain number of “sky miles” for each dollar spent. The cardholder can use these miles to get
free airline tickets, or other free gifts that the airlines promote. Today, there are a lot of cards that offer
sky miles, but they usually have a catch.
They probably do not offer the lowest rates or they have a negative
agreement that goes along with them.
But despite the catch, many people like to use their card more because
they feel that they are getting something for nothing and that they might as
well get some free miles and pay off the bill than use cash, which offers
nothing.
The
biggest way that the companies try to trick people is by making them think that
the only thing that is important about their card is what bonuses that they
get. A lot of people fail to look at
the fine print and are drawn in by the promotion. There is not an easy way for people to pick the best card without
worrying about giving up something.
Each person must really know what they want out of their credit card and
what benefits they should be going with.
Other incentive programs
that companies offer enlist their cardholders into a lottery in which they can
win prizes.
At first credit cards and
checks/check cards may appear to be the same.
In fact, check cards; also know as debit cards, can be much better than
credit cards for the simple reason that the consumer does not have to worry
about having the money to spend.
However, the major advantage of the credit card is that it does allow
the consumer to spend money that they do not have. That can be both a good thing and a bad thing.
How cards are issued/ “Choosing” the right card
Even though they say that it is the consumer that is choosing the card they want, they are greatly limited and influenced by the company. Promotions, financial history and financial status all affect what card a person can get. Like a pushy salesman, credit card issuers get people to sign up for programs that they do not need, which raise their profit.
There are a variety of cards
to choose from, each having its own advantages and disadvantages. The most popular are MasterCard and
Visa. To attract customers, companies
use a variety of different methods.
Some are low rates, high acceptability, and simple billing. But these companies do not just have one
card. They offer a variety of different
cards for people in different situations.
For example they have platinum cards with low rates for long time
customers with a good credit history.
They also offer student cards, cards for teenagers that are under the
parent’s name, and also they have cards that cater to those who do not have a
good credit history. The unfortunate
people that have developed a poor credit history have to pay a much higher rate
because they cannot be as trusted to return the money.
Although
they make information available to the public, it is hard to find out specific
rates on credit cards and which card you should have. Credit cards come in a variety of shapes and forms. There are so many different cards that it is
hard to choose one. Most people just
sign up for a card for a certain promotional discount. In many cases, the card with the discount is
much worse than anther card that you could get if you knew about it.
Specifics
There are several attributes
that credit cards have. These include a
monthly fee, APR (annual percentage rate), financing charges, security,
acceptability, convenience and simplicity.
Credit History
Credit history is a funny thing. In order to get a credit card you must have a history, be it good or bad, however you need a credit card to establish a credit history. It is a catch 22. One way around it is if a young adult has their card issued under their parent’s name. In this case the parents are responsible for making the payments, but the child is given the credit history based upon his/her payments. Some companies do understand that you cannot have a credit history if you have never had a credit card. Some of them allow a person to get a credit card by setting up a bank account from which they can draw money in case the person never pays their bills. Also, many companies allow people to co-sign up for a card. In most cases spouses, or business associates share a card and as long as one person has credit history, they both create a history through their card.
How to find out about them
How do credit cards
work? Most credit card companies do not
want you to know, but they all explain it in the fine print, which is worded
technically to prevent loopholes and to elude the consumer. But, anyone who is curious enough can find
out all about credit cards online. Most
of the credit card company’s websites will explain how their cards work, but
the best information comes from the consumers themselves. There are all kinds of messages boards and
websites that discuss proper credit card use, credit card consolidation,
getting out of dept and horror stories of specific credit card dealers.
Credit cards can be like an addiction for some people. They do not realize that they have to eventually pay for what they charged. The biggest risk in having a credit card is that it appears that you have money, when you really may not. Although most people find it hard to believe, there are in fact people that cannot stop spending or believe that they are getting things for free. Even when they are hit by bill after bill, it doesn’t occur to them that they are ruining their credit history.
Conclusion
People need to research how credit cards work and how their specific card will work.