A credit card is a plastic card which can be used to purchase goods or services based on a payment agreement between the company issuing the card and the card holder. The company issuing the credit card assigns a line of credit to the card holder. This allows the cardholder to request a cash advance and borrow money for payment to a merchant. In return for these privileges the credit card company charges interest on the balance which the card holder carries.
Credit card holders enjoy many benefits, the main one being convenience.
A credit card allows a small short term loan to be made very quickly. Credit cards will also offer incentives such as earning points to be redeemed for rewards, such as airline tickets or products. Another benefit of credit cards is insurance or warranties on some types of products purchased with a credit card. Finally, many consumers find carrying credit cards to be more convenient than carrying cash.
There can be pitfalls for consumers who choose to use credit cards. Introductory rates and interest are normally low, but once the introductory period is over, fees and interest can be much higher. Also, rates may go up if a payment is late or the credit card holder miees a payment.
Merchants who accept credit cards also enjoy some benefits. First, a credit card transaction is more secure than some other forms of payment, such as a check. However, this benefit comes at a cost to merchants. Merchants who accept credit cards are subject to a commission which is normally a percentage of the transaction total.