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What are credit cards and what types do we distinguish?

Credit cards have opened up opportunities for us to expand our financial “scope”, in other words, they are the gateway to cashless payments. We no longer have to limit ourselves by having to carry banknotes or coins for payment.

Nowadays, having a credit card is as common as greasing butter with butter. We usually get a card with the opening of a bank account (either a current or credit account), often its ownership is practically an obligation. Do you have an overview of which cards you may encounter on the market and what possibilities does your credit card offer you? No? Let’s look at the division of payment cards in more detail.

Cards can be divided into several groups according to different criteria:

  • According to bank billing – debit, credit, charge cards and shopping credit cards.
  • Depending on the type of design – electronic and embossed cards.
  • According to the technological design of the card for electronic transaction – cards with magnetic stripe, chip technology or hybrid cards.

Debit Card

Debit Card

Debit cards are tied to the client’s current account (ie not to the credit account). From there, the client draws his own funds through a debit card, for example by making non-cash payments in shops and on the Internet or withdrawing from an ATM. It is therefore not possible to draw on this card money from the bank under the credit to the minus.

It is precisely because the use of a debit card does not create a loan that the client’s income is not normally determined for its issuance. The debit card thus serves the client as a tool through which he / she can make payments through a current account eg in shops, restaurants, on the Internet, or withdraw money from an ATM.

  • Some banks issue debit cards not only to current accounts but also to savings accounts.
  • You can pay by debit card up to USD 500 without contact, just by placing the card to the terminal. If you pay more than $ 20, you will need to enter your PIN code. This feature of debit cards is undoubtedly practical, but be careful not to steal the card. In that case, a thief could break you if he made many smaller transactions. Therefore, if a theft or loss occurs, immediate card blocking by the bank is absolutely in place!
  • The bank may require that your current account always be at least a minimum, fixed amount (eg USD 100). So if you have $ 100 in your account and you set this account’s minimum content limit to $ 5, you can only spend $ 50.

Credit card

Credit card

Basically the same look – that’s the only thing that connects a debit and credit card. The credit card is linked to a credit account (it is not always necessary to have a current account with the bank). The money you spend is not yours, but the banks. You are thus concluding a loan with the bank through this card. You must repay this loan regularly within the agreed time.

A credit card loan differs from a regular consumer credit primarily in that it offers a so-called interest-free period (lasting around 15 to 30 days). This means that if you repay the money spent within this time period, you will not be charged interest on the repayment (other fees, eg for management, but yes). But beware! The interest-free period does not apply to ATM withdrawals. In practice, the credit card works so that if you pay off your monthly spend at the end of the month, the repayment will not be interest-bearing.

Do not underestimate the importance of credit cards! Although spending on a credit card can be tempting and easy to do, keep in mind that this loan can also contribute a negative entry in the debtors’ registers if you do not repay properly. Spend wisely!

  • Withdrawing money from ATM by credit card is very disadvantageous. Such a transaction is immediately interest-bearing and also involves very high charges. So always withdraw from an ATM with a debit card of your own money.
  • Since a credit card is tied to a credit account, it may not be an obligation to hold a current personal account with the bank (depending on the bank’s terms and conditions, which may require the debtor to hold a current account with the bank).
  • Unlike a debit card with a credit card, the creditworthiness of the client is ascertained; the bank thus protects itself against possible loss debtors.
  • A possible alternative to the credit card is an overdraft, which allows you to draw down on your current account. However, the overdraft is also subject to certain rules, such as the obligation to top up the debt every six months or a year.

Charge card

Charge card

Charge card works on a similar principle as a credit card, but you have to repay your debt in full and in full. At the end of the month, the bank will send the debit statement to the debtor, which must repay the debt by the given date (usually a fixed date is set during the following month). However, the interest-free period is an advantage if you repay the debt on time.

  • Banks normally issue charge cards only to the most carbon-intensive clint

Shopping credit card

Shopping credit card

Basically, these are credit cards provided by non-banking financial institutions. However, it differs considerably from a conventional credit card in several points, making it less advantageous for the borrower:

  • You can pay with a bank credit card at most merchants. Conversely, a shopping credit card may not give you this comfort, many stores do not accept it for payment.
  • Also forget about the interest-free period. This does not exist with shopping credit cards, so you will always pay interest.
  • With this card it is not possible to withdraw from ATM.
  • On the contrary, we can consider the speed of negotiation of the application for this card as an advantage.
  • Fast handling is a typical feature of non-banking companies, but is often redeemed by severe sanctions and higher fees and interest. With purchase credit cards, the interest rate can climb up to more than 25% per year.

Prepaid cards

Prepaid cards

They operate on the principle of a debit card, but differ from it in that it is not necessary to link it to a bank account. They are therefore used as a means for pocket money for children / adolescents who do not yet have an account. The disadvantage is the amount of different fees associated with it, or a lower maximum deposit limit.

 

Cards with this technology have a magnetic strip on their back, which contains identification information about it and its owner (used to verify data when paying through a payment terminal or using an ATM).

Cards with chip technology

Cards with chip technology

Unlike the magnetic strip, the chip is used to store the PIN (due to the higher security level), so all payments made through the chip must be confirmed by the PIN. Both magnetic stripe and chips are used not only in the field of payment cards, but also for loyalty cards of various kinds, eg fitness cards or fuel station cards.

 

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