Credit cards are issued by a financial company to a person, thereby giving him the option to borrow funds to make purchases. The borrowing limits are fixed by the company depending on the individual's credit ratings. When an individual uses his credit card to make a payment, money doesn't get transferred from his account. Instead, the credit limit on his credit card is lowered by that amount.
While a card holder can use his credit card to make a payment for any goods or services, he has to pay the amount back to the credit card company in a stipulated time frame. If a person is unable to do after the given time, he will be charged an interest rate, which can be as high as 20% in some cases.
Encyclopedia Britannica traces the origin of Credit cards to United States in 1920, when some companies like hotel chains, oil companies issued it to its customers to use it across their branches to avail of services. Later Diner Club introduced such a card that could be used across a variety of stores. In 1958, American Expressway introduced the first universal credit card. Later bank started issuing credit cards. The first of its kind was Bank Americard by Bank of America in California, which in 1976 was renamed as Visa.
Today all credit cards have an embossed bank number and
are of size 85.60X53.98mm. These days for extra security measure a personal
identification number (PIN) is also needed. Credit cards are ideal for short
term financing. Even though the credit limit is fixed, reckless spending
through credit cards and too much dependence on it can push one into a
bottomless pit of debt.
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