A credit card is a payment card issued to users as a system of payment.
It allows the cardholder to pay for goods and services based on the holder's
promise to pay for them.The issuer of the card creates a revolving account and
grants a line of credit to the consumer (or the user) from which the user can
borrow money for payment to a merchant or as a cash advance to the user.
A credit card is different from a charge card: a charge card requires the
balance to be paid in full each month.In contrast, credit cards allow the
consumers a continuing balance of debt, subject to interest being charged. A
credit card also differs from a cash card, which can be used like currency by
the owner of the card.
Benefits to customers
The main benefit to each customer is convenience. Compared to debit cards
and cheques, a credit card allows small short-term loans to be quickly made to
a customer who need not calculate a balance remaining before every transaction,
provided the total charges do not exceed the maximum credit line for the card.
Different countries offer different levels of protection. In the UK, for
example, the bank is jointly liable with the merchant for purchases of
defective products over £100.
Many credit cards offer rewards and benefits packages, such as enhanced
product warranties at no cost, free loss/damage coverage on new purchases,
various insurance protections, for example, rental car insurance, common
carrier accident protection, and travel medical insurance. Credit cards can
also offer reward points which may be redeemed for cash, products, or airline
tickets. Research has examined whether competition among card networks may
potentially make payment rewards too generous, causing higher prices among
merchants, thus actually deteriorating social welfare and its distribution, a
situation potentially warranting public policy interventions.