credit card

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credit card

credit card, device used to obtain consumer credit at the time of purchasing an article or service. Credit cards may be issued by a business, such as a department store or an oil company, to make it easier for consumers to buy their products. Alternatively credit cards may be issued by third parties, such as a bank or a financial services company, and used by consumers to purchase goods and services from other companies. There are two types of cards—credit cards and charge cards. Credit cards such as Visa and MasterCard allow the consumer to pay a monthly minimum on their purchases with an interest charge on the unpaid balance. Charge cards, such as some American Express cards, require the consumer to pay for all purchases at the end of the billing period. Consumers may also use bank cards to obtain short-term personal loans (including “cash advances” through automated teller machines). Credit card issuers receive revenue from fees paid by stores that accept their cards and by consumers that use the cards, and from interest charged consumers on unpaid balances.

Diners Club became the first credit card company in 1950, when it issued a card allowing members to charge meals at 27 New York City restaurants. In 1958, Bank of America issued the BankAmericard (now Visa), the first bank credit card. In 1965, only 5 million cards were in circulation; by 1996, U.S. consumers had nearly 1.4 billion cards, which they used to charge $991 billion in goods annually.

The growth of credit cards has had an enormous impact on the economy—changing buying habits by making it much easier for consumers to finance purchases and by lowering savings rates (because consumers do not need to save money for larger purchases). Oil companies, car makers, and retailers have also used the cards to market their goods and services, using credit as a way of encouraging consumers to buy. Concern has been voiced over widespread distribution of bank credit cards to consumers who may not be able to pay their bills; costly losses and theft of cards; inaccurate (and damaging) credit records; high interest rates on unpaid balances; and excessive encouragement of consumer debt that has cut savings in the United States. Legislation enacted in 2009 (and effective in 2010) imposed restrictions on credit card companies, including restricting how they could raise interest rates and placing limits on the issuing of cards to persons under 21 years of age, and attempted to make credit card bills clearer and more informative.

Technology advances have facilitated the use of credit cards. Recording and confirming purchases made using credit cards has progressed from taking a mechanical impression of the card on a paper slip to reading a magnetic strip and transmitting the data electronically to replacing the strip with smart card electronic chip technology which can in some cases be read using radio-frequency identification. Merchants, who once needed to telephone a bank office for approval, are now connected to banks by modem, so purchases are approved rapidly; on-line shopping on the Internet is possible with credit card payment. An alternative to credit cards is the debit card, which is used to deduct the price of goods and service directly from customers' bank balances, or a mobile payment service, which uses a smartphone app (usually linked to a bank account, debit card, or credit card) to complete a payment.

The Columbia Electronic Encyclopedia™ Copyright © 2022, Columbia University Press. Licensed from Columbia University Press. All rights reserved.
References in periodicals archive ?
The Credit CARD Act precluded credit-card issuers (with minor exceptions) from retroactively raising interest rates on existing balances--unless the cardholder is more than 60 days late.
The 20 percent of female respondents reporting an increase in credit-card usage during this period is significantly higher than the 12 percent for males with a p-value of .016.
CARD became part of the 1968 Truth in Lending Act (TILA).The aim of the bill is to protect consumers from issuers using unfair credit-card practices and place some restrictions on the methods they use to market their services especially to students and individuals less than 21 years old.
These victims, however, would still have entities to hold responsible: The banks or credit-card issuers that improperly offered credit to the thieves, and the reporting agencies that unfairly downgraded their credit.
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Credit cards are especially dangerous because of the business practices of credit-card companies.
Unfortunately, 75 percent reported that their credit-card terms had worsened since December 2008, making paramount the need to address the inequities and unfair treatment small businesses are subjected to by credit-card companies.
And credit-card issuers have pursued similar tactics across Latin America and Eastern Europe.
The Kauffman study found that every $1,000 in credit-card debt increases the probability that a new firm will close by 2.2 percent.
Manning's comprehensive approach to the causes of credit-card debt is far more compelling than the simple notion that aggressive marketing campaigns and solicitations alone have propelled the trend of credit-card-based lifestyles.
As small businesses across the nation are struggling to keep their doors open, the need for affordable and fair credit-card financing is critical.