Credit card facts for kids

An example of the front in a typical credit card:

1. Issuing Bank Logo
2. EMV chip (only on "smart cards")
3. Hologram
4. Card number
5. Card Network Logo
6. Expiration Date
7. Card Holder Name
8. Contactless Chip

An example of the reverse side of a typical credit card:

1. Magnetic Stripe
2. Signature Strip
3. Card Security Code

A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services, based on the cardholder's promise to the card issuer to pay them for the amounts so paid plus other agreed charges. The card issuer (usually a bank) creates a revolving account and grants a line of credit to the cardholder, from which the cardholder can borrow money for payment to a merchant or as a cash advance.

It is a card which allows people to buy items without cash. When they buy something, a sales clerk uses it to charge the money needed to their bank account, so the person will pay later. They are buying it on credit, which is the trust that they will pay it back later.

If a person does not pay within a limit (usually a month) they will have to pay extra money, called interest.

Benefits and drawbacks for cardholders

Benefits

The main benefit to the cardholder is convenience. One can quickly get small short-term loans. Besides, no interest is charged when the balance is paid in full within the grace period.

Many credit cards offer benefits to cardholders. Some benefits apply to products purchased with the card, like extended product warranties or purchase protection. Other benefits include various types of travel insurance, such as rental car insurance, travel accident insurance, baggage delay insurance, and trip delay or cancellation insurance.

Credit cards may also offer a loyalty program, where each purchase is rewarded based on the price of the purchase. Typically, rewards are either in the form of cashback or points. Points are often redeemable for gift cards, products, or travel expenses like airline tickets.

Drawbacks

As all credit cards charge fees and interest, some customers become so indebted to their credit card provider that they are driven to bankruptcy. Some credit cards often levy a rate of 20 to 30 percent after a payment is missed. This can lead to a snowball effect in which the consumer is drowned by unexpectedly high-interest rates.

Several studies have shown that consumers are likely to spend more money when they pay by credit card. Furthermore, researchers have found that using credit cards can increase consumption of unhealthy food, compared to using cash.

Images for kids

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  Metal signs at a plant nursery in Los Angeles County, California marketing Mastercharge and Bankamericard

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  Receipt from 1997 - card physically swiped and information imprinted on the receipt

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  Visa, MasterCard, American Express are card-issuing entities that set transaction terms for merchants, card-issuing banks, and acquiring banks.

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  An example of street markets accepting credit cards. Most simply display the acceptance marks (stylized logos, shown in the upper-left corner of the sign) of all the cards they accept.

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  Acceptance mark at an automated teller machine

See also

In Spanish: Tarjeta de crédito para niños