The idea of credit cards has been around longer than that of bills. The first forms were called credit markers. These markers indicated different amounts that were borrowed. Later on, business establishments adopted the concept and introduced prepaid charge cards to insure loyalty from their customers.

It eliminated traveling around with large sums of money and provided security for customers. The downside is that not all parts of the country had the same establishments that the owner has subscribed to. Hence, individuals at that time had to get 12 cards or more, especially those who travel a lot.

The modern credit card, designed by Frank McNammara, enables every purchase in various stores and business establishment to done using only one card. This was made possible for the credit card company served as the ‘middleman’ between the client and store. This ingenious scheme became a large hit that banks, such as American Express and Visa, were forced to issue their own cards. Today, especially with most transactions done online, credit cards are extremely necessary.

Modern credit cards have different schemes to suit every individual’s lifestyle. American Express and Diner’s club cater to those who spend for entertainment and frequent travelers. The credit limit is usually high and there is no interest to be paid. The credit balance should be paid monthly, except for things like airline tickets in which you have an option of paying on an installment basis. Also, owners of these cards have an annual fee to be paid, which decreases as the purchase volume increase. So, if you have a regular purchase of $100, you will have to pay $25 or around 2% of your total purchase. Hence, for your $1000 expenditure per month, you will be charged $20.

Another kind of credit card is the Bank Card. These cards are issued by members of Visa and MasterCard. Unlike travel and entertainment cards, bank cards are payable on an installment basis and would charge anywhere from 18 to 23% interest. The minimum payment would 11/2 percent of the balance for the given month or $20 if the amount is less. The interest would then be compounded for the next month.

So, if you made a $100 purchase for this month and paid $20, the new outstanding balance would be $81.20. And if the following month you did the same thing, you would get a new balance of $163.62 for the interest has already been compounded. The same is true for retail cards issued by establishments like gasoline outlets and department stores. But retail cards are only usable for purchases with the same establishments and some of their affiliate companies.

Although credit cards have high limit, it is important to purchase only those you can afford to pay for at the end of the month. Buying something worth more than what you earn needs a lot of assessment to avoid financial complications.

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