Credit Cards

What Is A Bank Credit Card?

Credit cards, whether issued by banks or other institutions, are another form of revolving credit. These cards entitle their holders to a predetermined maximum against which they may borrow, and the principal repaid is automatically restored to the credit line.

You can use a credit card to pay for goods and services from participating stores, restaurants, airlines and the like and can also borrow cash against it. Interest rates on bank-card purchases tend to be high, and the rates for cash advances even higher. Business institutions that accept credit cards pay a fee to the issuer — the bank, for example — to help defray the cost of credit card transactions, while on a cash advance the customer must bear the entire cost.

Thousands of banks around the country offer major credit cards and until recently, most of them were issued without charge. Many customers made use of their cards to purchase goods and services and then, by paying in full during the first billing period, avoided all interest charges. In effect, these people were taking out short-term, interest-free loans.

As this practice defeated the banks’ purpose in issuing credit cards — to encourage purchases on credit so that the bank could earn interest — many institutions began charging membership fees of $15, $20 or more a year for the use of their cards. Some banks have waived fees in order to attract new customers, and others offer cards free of charge to those who maintain accounts with the bank. Because the interest rates on credit card purchases may vary from one institution to another, it is a good idea to check with a number of banks before deciding to sign up for a credit card.

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