Using a credit card to purchase goods and services is impractical for consumers in today’s market because of risks to cardholders who own one or more credit cards. Purchases made with a credit card are more expensive when interest accumulates and the balance is not paid off within a grace period. With a higher balance or failure to pay the minimum monthly payment, more interest is added to a credit card balance each month. Every time a credit card balance rises, so does the monthly minimum payment.
Keeping track of a credit card balance is easy if a card holder has access to an Internet connection. Saving receipts from each transaction can be time consuming and unorganized if a person prefers not to use an on line service. Credit cards are seen as convenient because a cardholder does not have to carry money or use a check to make a purchase. Most retailers do not accept checks for payment and consumers use credit cards instead. Using a debit card enables a consumer to spend actual money and live within their means.
Spending habits on a debit card are not reported to any credit bureaus since each purchase is deducted from a checking account. Credit card fraud and identity theft are risks for responsible card holders. Illegally obtaining personal information such as Social Security numbers, names, and addresses is a highly organized and sophisticated crime. Information is stolen from a card holder by burglaries, computer crime, and theft. Banks who issue credit cards offer protection against fraudulent charges.
Card holders have to go through a time consuming process to receive proper credit for disputed charges. Credit histories are checked by employers and other loan companies to determine trustworthiness. Results from a credit check can be a factor if someone gets accepted for employment. Loan companies use these results to calculate a loans interest rate. The quality of an applicant’s credit history determines if they get approved or declined for a loan.
Lower interest rates are granted to applicants with a better credit history. A person with a bad credit history may get approved for a loan, but it will have a higher interest rate. Higher spending limits on a credit card encourage cardholders to purchase goods and services they cannot afford with actual money. Low introductory annual percentage rates encourage consumers to apply for a credit card, but they expire within a short period of time. Once the introductory rate expires, more interest is added to a balance.