Suppose you are a store owner. Who do you trust enough to lend you money? For most of the history, people have lent to people they knew personally. This worked because the debtor and the lender most often lived in small towns and knew each other. But as towns grew in size, this relationship began to become more complicated. Managers of large stores could not count on salespeople to know every customer by sight. So trusted customers were given various trinkets, such as badges and keychains. In 1928, for this purpose issued token Charga-plate, resembling a dog tag. If you showed such a token to a salesman, even to a stranger, you could leave the store with a bundle of unpaid merchandise. Some of these tokens gradually became full-fledged symbols of high status.
In 1947 the Charg-It token was issued, which allowed its holder to borrow goods not from a particular store, but from the entire chain. True, it was only valid within a few blocks in Brooklyn. But then, in 1949, there was the Diners Club card, designed for traveling salesmen. With the token the traveling salesman could buy food and gasoline, pay for a hotel room and buy merchandise at stores across the United States. The idea worked: in the first year 35 thousand people bought the card, and the company significantly expanded the list of hotels, airlines, gas stations and car rentals that accepted the card. In the 1950s Diners club had competitors – American Express credit card and similar cards that banks started to issue.
What Is A Credit Card?
The main difference between a credit card and a debit card is that you use the bank’s money, not your own. In essence, a credit card is the same as a loan, but on more flexible terms: they can be changed depending on your financial needs.
Let us explain by an example: if you take a loan from the bank, for example, 100,000 rubles, then you receive the entire amount immediately (in cash or in the current account), and the bank does not care how exactly you will dispose of this money. The main thing is to repay your debt on time, and you should do it according to a known schedule of payments.
If you use a credit card, the bank’s money is at your disposal within your credit limit, and the size of the minimum payment on the debt will depend on the amount spent.
Why Might You Need A Credit Card?
A credit card is a convenient and useful financial tool, but it will only work for disciplined people who can monitor their finances and pay back debts on time. If you’re planning to use it all the time, you should have a regular and stable income, otherwise it will be hard to make a minimum payment on time. Delinquency can lead to a poor credit history and may result in a denial of credit in the future.
Another way to use a credit card is to keep it as a safety net, because if you suddenly need money, you will have it right in your wallet, without having to borrow from a friend or run to the bank for a loan. In this case, it is worth choosing a credit card with free annual service.
What Is A Credit Limit?
A bank limits the amount of money you can use. The size of the credit limit depends on many factors, the main one being the solvency of the cardholder. If you are already a client of the bank (for example, receive your salary or keep money on deposit), you can count on a larger amount.
Credit limit can be increased during the time of use of the card: it is enough to be a careful and reliable borrower, to spend money from your credit card regularly and to repay debts on time.
What Is the Interest Rate?
Every credit card (just like a normal loan) has an interest rate, so you have to pay something for using the bank’s money. The interest rate is rarely fixed. Most banks advertise a range from 9% to 40% per annum, but the exact amount is set individually for each client. Interest is not charged on the entire amount approved by the bank, but only on the money already spent. But there is good news: the bank’s money can be used for free thanks to the grace period.
What Is A Grace Period and How to Use It Correctly?
Almost all credit cards have a grace period: the time during which the bank does not charge interest on the use of money. Grace period consists of a reporting and payment periods and can last from 30 to over 150 days, depending on the conditions of different banks. Reporting period is the time during which you can spend money from the card. Payment period is the time when you have to pay back what you spend to the bank. Grace period starts from the date of the first card transaction (purchases, payments for services, cash withdrawals, transfers etc.): if you repay the debt in full during the grace period you will not have to pay the bank for using your money. At the end of the grace period, interest will accrue for each day you use the bank’s money. The longer the grace period, the more time you have to repay the debt and pay nothing to the bank.
Cultural Shift
If your bank is sure you’ll get your money back, no problem. The store terminal gets digital approval of the transaction, prints a receipt, and you walk out of the store with the merchandise. The whole process takes a few seconds.
Credit cards have spread all over the world. The trust that used to be the privilege of small-town do-gooders has been extended to everyone.
In terms of everyday life, it brought great changes. No longer did a person have to go to the bank clerk, ask him for a loan and explain why he needed the money
Instead, anyone could spend the loan on anything, and extend it as many times as needed as long as they were willing to pay the interest, which was often as high as 20 to 30 percent.
But such easy access to money may be doing strange things to our psyche.
We hope this article was helpful to you and that it answered all of your questions!