Credit Card FAQs

The use of credit cards originated in the United States during the 1920s, when individual firms, such as oil companies and hotel chains, began issuing them to customers." However, references to credit cards have been made as far back as 1890 in Europe. Early credit cards involved sales directly between the merchant offering the credit and credit card, and that merchant's customer. Around 1938, companies started to accept each other's cards. Today, credit cards allow you to make purchases with countless third parties.

First Bank Credit Card
The inventor of the first bank issued credit card was John Biggins of the Flatbush National Bank of Brooklyn in New York. In 1946, Biggins invented the "Charge-It" program between bank customers and local merchants. Merchants could deposit sales slips into the bank and the bank billed the customer who used the card.

Diners Club Credit Card
In 1950, the Diners Club issued their credit card in the United States. The Diners Club credit card was invented by Diners' Club founder Frank McNamara and it was intended to pay restaurant bills. A customer could eat without cash at any restaurant that would accept Diners' Club credit cards. Diners' Club would pay the restaurant and the credit card holder would repay Diners' Club. The Diners Club card was at first technically a charge card rather than a credit card since the customer had to repay the entire amount when billed by Diners Club.

American Express issued their first credit card in 1958. Bank of America issued the BankAmericard (now Visa) bank credit card later in 1958.

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Credit cards are issued after an account has been approved by the credit provider, after which cardholders can use it to make purchases at merchants accepting that card.

When a purchase is made, the credit card user agrees to pay the card issuer. The cardholder indicates his/her consent to pay, by signing a receipt with a record of the card details and indicating the amount to be paid or by entering a Personal identification number (PIN). Also, many merchants now accept verbal authorizations via telephone and electronic authorization using the Internet, known as a 'Card/Cardholder Not Present' (CNP) transaction.

Electronic verification systems allow merchants to verify that the card is valid and the credit card customer has sufficient credit to cover the purchase in a few seconds, allowing the verification to happen at time of purchase. The verification is performed using a credit card payment terminal or Point of Sale (POS) system with a communications link to the merchant's acquiring bank. Data from the card is obtained from a magnetic stripe or chip on the card; the latter system is in the United Kingdom and Ireland commonly known as Chip and PIN, but is more technically an EMV card.

Other variations of verification systems are used by eCommerce merchants to determine if the user's account is valid and able to accept the charge. These will typically involve the cardholder providing additional information, such as the security code printed on the back of the card, or the address of the cardholder.

Each month, the credit card user is sent a statement indicating the purchases undertaken with the card, any outstanding fees, and the total amount owed. After receiving the statement, the cardholder may dispute any charges that he or she thinks are incorrect (see Fair Credit Billing Act for details of the US regulations). Otherwise, the cardholder must pay a defined minimum proportion of the bill by a due date, or may choose to pay a higher amount up to the entire amount owed. The credit provider charges interest on the amount owed (typically at a much higher rate than most other forms of debt). Some financial institutions can arrange for automatic payments to be deducted from the user's bank accounts, thus avoiding late payment altogether as long as the cardholder has sufficient funds.

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Generally, the card holder needs to earn points that are equivalent to gas purchases, free travel ticket, free hotel accommodation, car rental, appliances and other cash purchases. Of course the rewards earned will depend on the type of reward credit card you have. Point systems also differ with every credit card company.

There are hotel reward credit cards that give as much as 5% rebates for purchases or expenses made from participating hotels, airlines, and establishments. Some travel reward credit cards and hotel reward credit cards also give away instant bonus points when the card holder makes his first purchase. Other credit cards award instant points the moment the customer signs up for the card and gets an approval.

When it comes to cash back credit cards, most of issuers give a 1 point or double points for every dollar spent on general purchases. Cash back credit cards usually allow its card holder to earn points regardless of where the purchase was made or what type of purchase it was. For this reason, many consumers prefer to apply for cash back credit cards because they offer more flexibility and more opportunities to collect points.

Apart from the cash back and rewards, these credit cards also come with other privileges. For instance, a lot of credit card issuers offer a 0% introductory period on the APR either for purchases or balance transfers or both. Some reward credit cards come with no annual fees so the card holder is assured that his membership remains active at no extra cost.

Other incentives include free travel accident insurance, car rental insurance, emergency card replacement, emergency cash replacement, reservation privileges and discounted rates from affiliate establishments. Almost all reward credit cards offer easy online application processing as well as an online account access for a more convenient banking. A yearly report of the account holder's summary of statements is also provided for free.

*see other types of credit card rewards

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Although specific terms and conditions vary between each credit card issuer, the procedure on earning the cash rewards is pretty much the same. Generally, a card holder earns a corresponding point for every dollar he spent using his credit card. Some credit card issuers give 2 points or double points for every dollar but in most cases, 1 point is given for each dollar amount charged on the card. The points are converted to cash or money points, thus their name- cash back credit cards.

What can you do with the cash points you earn? You can use these cash points to make new purchases or pay bills using your credit card. Some credit cards would require the holder to spend his reward from a specific shop while others give the flexibility to use your cash rewards from any store you want.Some cash back cards impose a maximum amount of cash points that the card holder can earn. After reaching this limit, the card holder may stop qualifying for more points. The best cash back credit cards however do not impose restrictions on the amount of rewards you can earn. As long as you're using credit card on your payments, you continuously earn points on your account. You can earn as much cash as you want as long as you're an active member of the reward program.

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An introductory annual percentage rate (APR) is a temporary APR that typically changes to a higher rate after the intro period (typically 3-12 months). Many people make use of these promotions to make a large purchase (or purchases), which they can then pay off in a series of months.

Some credit cards have an intro APR attached to only purchases, some have an intro APR attached to only balance transfers and some have an intro APR attached to both balance transfers and purchases.

Every credit card is a bit different and promotional offers often change, so be sure to thoroughly look over the terms and conditions for each specific card before applying.

• Compare Low APR Cards

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In the most basic terms, a balance transfer is a way of moving a debt from one credit card to another credit card. This is often done to save money, as the new credit card may have a lower finance rate (APR) than the old credit card.

Occasionally, credit cards have promotional balance transfer rates that typically last from 3-12 months. A balance transfer rate is the rate (APR) that is attached to balances transferred to that card from another card. This "balance transfer rate" may differ from the rate (APR) that is attached to new purchases made with the card.

Every credit card is a bit different and promotional offers often change, so be sure to thoroughly look over the terms and conditions for each specific card before applying.

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