Definition

Credit cards are small plastic cards that credit card institutions issue to members. Each card and member receives a credit limit, or how much money he or she can spend each month. Customers can then present merchants who accept credit as a method of payment with the credit card instead of cash or checks and the merchant will accept it as payment for goods and services. The customer then must pay on the card on a monthly due date.

Credit cards are different from charge cards, in that they allow customers to revolve their balance and not pay it off in full each month. Credit card institutions charge interest rates and additional fees for the privilege of a revolving balance, and usually require customers to pay, at least, a minimum payment every month; however, customers usually have the option to pay the balance in full at any time.

If a customer goes over their credit limit during the month, the credit card institution typically charges an “overlimit fee” to the account that the customer must pay on top of their accumulated balance. If a customer goes over their limit many times in succession, the credit card institution will continue to charge overlimit fees and in addition will not increase the individual’s credit limit until he or she can demonstrate to the institution that they can be responsible with their credit and stay within their approved limits for six months or more.

The interest rates on credit cards tend to be very high, as this is how the credit card companies make their money. If customers are unable to pay their bills, the company can take the individual to collections and harass the customer to obtain the requested payment. It is easy for those irresponsible with their credit cards to get into a great deal of financial trouble with them.