A Credit Card

A credit card is part of a system of payments. It is named after the small plastic card issued to users of the system. It entitles its holder to buy goods and services based on the holder's promise to pay for these goods and services. The issuer of the card grants a line of credit to the consumer (or the user). So the user can borrow money for payment.

Most credit cards are issued by local banks or credit unions.

When a purchase is made, the credit card user agrees to pay the card issuer. The cardholder indicates 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.

The main benefit to each customer is convenience. Compared to debit cards and checks, a credit card allows small short-term loans to be quickly made to a customer. The customer need not calculate a balance remaining before every transaction. Credit cards also provide more fraud protection than debit cards.

Additionally, carrying a credit card may be a convenience to some customers, as it eliminates the need to carry any cash for most purposes.

Credit cards with low introductory rates are limited to a fixed term, usually between 6 and 12 months after which a higher rate is charged. As all credit cards assess fees and interest, some customers become so encumbered with their credit debt service that they are driven to bankruptcy. Credit cards will often stipulate a default rate of 20 to 30 percent in the event a payment is missed. That is, if a consumer misses a payment, the rate will automatically increase to a very burdensome level.