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Credit cards: Spending Based on a Promise

Credit cards are electronic cards used as payment for goods and services purchased by its holder. The holder of the card is given by the issuing company a line of credit which he can use to avail of such goods and services. These cards provide the holder the ability to make advance cash payments.

Trade and commerce considers the efficiency of transactions to be its most important elements. Credit cards have helped merchants conduct their business by preventing them from carrying too much cash in their pockets. It also saves them time and effort from counting the money that they have to pay. With these cards, all they have to do is to swipe and sign.


Nature of Credit cards

Credit cards are actually in the form of creating debts. As such, before a person is given one, a person must fill out an application form and submit it to the issuing company. Depending on the credit standing of the applicant, the approval to issue these cards take either a short or a long period of time. This is because the company still has to make its own evaluation of the applicant. It may require the procurement of his credit standing, credit score, and records of previous transactions before his application is granted.

When the application is approved, the company will give him the credit card. In effect, it gives the line of credit to the holder based on the promise that he will pay for whatever he will buy using it. You can compare the interest rates and costs of credit cards on


One of the items thoroughly checked by issuing companies is the so-called five C’s of credit. These items determine the overall performance of an applicant in terms of credit financing. They are the following:

1. Character
An applicant must have a good reputation in terms of handling credit transactions. He must not have any bad record when it comes to payment of his obligations.

2. Capacity
An applicant must have the capacity to pay his obligations. Giving a credit card to someone who does not have the capacity may give problems to the issuing company in the future.

3. Capital
An applicant must carefully consider the investment or purpose on which the credit card is used. He must not place it into a venture which does not ensure any returns.

4. Collateral
An applicant must have properties sufficient to pay off his credit in the event that he defaults. His properties will serve as security of the loan.

5. Conditions
Both parties must agree to the conditions set forth by them. Usually, it is the company that issues the terms and conditions, but the borrower can always make counter-offers.

One might think that, unlike business loans, credit cards are much difficult to get. This is because, unlike business loans, credit cards give a line of credit. This means that the issuing company is not giving an exact amount of money to be used by the borrower. Obtaining a credit card does not mean that a borrower only has, say, a hundred thousand dollars to spend. One can infer that having a credit card means having an unlimited amount of money.


Advice On Acquisition

In getting a credit card, one must consider the following:

1. Improve on the five C’s of credit
Because issuing companies usually depend on the five C’s of credit in making their decision to approve or reject an application, the applicant must prove to them that he satisfies all of the criteria.

2. Do not spend on unnecessary purchases
Because credit cards give the holder the unlimited capacity to buy anything he wants, he must also remember that he must not spend on unnecessary items. Since these cards are in reality a form of loan, he must be aware that he is not using his own money in incurring such purchases. This is one of the greatest mistakes that card holders do. Just because they have acquired a line of credit does not mean that they have the freedom to use it whenever and wherever they like.

3. Pay the credit before incurring another set of purchases
Before making another set of purchases, the credit card holder must pay the credit that he has incurred from his previous purchases. He must not, at all times, let his unpaid debt accumulate, because it will result to a larger interest charge.

The system of credit cards is different from simple loans. In the former, the interest rate is charged not periodical, but per transaction, unlike the latter, which is charged on a periodical basis. For instance, if a person buys a bag and a shirt, these items are charged separately. If he lets his credit unpaid and he buys another bag and another shirt, the interest charged from the previous items bought will be carried over on the new purchase, and these newly purchased items will again be charged separately. Simply put, a person will pay a higher interest charge, because he pays for both the previous transaction and the current one.

4. Maintain credit score
Maintaining credit score is one of the ways to make a good record of the credit standing. Some countries solely rely on the credit score as a means to determine whether or not to approve someone’s application for a credit card.

CONCLUSION – Credit Cards

Credit cards are one of the most conventional ways in transacting business. They give flexibility and efficiency to the holder. However, behind the freedom to spend is a promise that he will pay for what he spends, and his failure to do so may subject him to disadvantageous consequences.