Repay at your own pace
The most popular form of credit is an open line you can tap into-and repay-at your own pace (as long as you make at least the minimum payment required). It can take two forms:
Unsecured revolving credit. For this type of credit, you get a "credit card." 'There's a maximum you can borrow, and any amount you repay is immediately available to borrow again. You may pay interest on what you borrow or you may be given a period of time to repay in full without interest. Most credit cards are "unsecured," which means the lender isn't entitled to take specific property if you don't repay.
Secured revolving credit. People with poor credit or no credit history can usually receive a secured credit card through MasterCard or Visa. (Some retailers also offer secured cards.) It looks and works like any credit card, with this main difference: You have to keep money in a savings account (as "security") and allow the card issuer to tap into it if you fail to pay your bills. The amount of credit you receive is usually linked to the amount you deposit.
Repay in full each time
Travel and entertainment cards (also called "charge" cards) show that you've been extended credit, but only for short terms: You're required to pay in full by the due date for any item that appears on your statement. There are, however, no interest charges. American Express (which allows you 30 days to pay) and Diners Club (which allows you 6o days to pay) are the two most famous issuers of this credit.
Pay as you go
You can also get a debit card, which doesn't technically give you credit. Instead, every time ''u use it your bank takes the money from your account ("debits") and sends it directly to the merchant. If the money isn't in your account, the transaction will be rejected. ATM cards (the cards used to do banking at "automated teller machines") are the most popular debit cards.
Debit cards don't offer as much protection against fraud or billing disputes as credit and charge cards. For one thing, it's harder to recover money already paid from your account.
Other benefits
Depending on who offers you credit and the level of credit you receive (e.g., a basic card era gold card), you might receive added benefits such as:
- guaranteed hotel reservations
- double the manufacturer's warranty and extended service agreements on most products
- free collision coverage on auto rentals (no need to buy the agency's coverage)
- travel and emergency assistance, including medical and legal referrals when traveling and arranging emergency transportation to hospitals
- assistance with replacing lost tickets or luggage
- language interpreters
- delivery assistance for prescriptions, emergency cash, replacement for lost or stolen cards or valuable documents
- trip assistance, from ATM locations to weather reports and health and legal requirements in your destination
To find out your benefits, read the brochure that comes with your card or call the customer service number on the back of the card.
Notes:
Rebates. Some card issuers promote rebates on Purchases. Look at these closely. For example, in one promotion a card issuer offered a 1% rebate-on a year's worth of finance charges, not purchases. So, if You spent $15,000 on the card in a year and paid, for example, $275 in interest that year, you'd receive a $2.75 rebate.
The PIN (personal identification number). To use your card for cash advances or withdrawals, you'll need to create a PIN (a password). Protect your PIN very carefully. Don't write it down, tell it to anyone, or let it be overheard.
Co-branding. You can get a credit card (typically Visa or MasterCard) that offers promotional tie-ins from other companies. Every time you use the card, for example, the company (e.g., an airline or a car maker) awards you points you can then use to buy their products at a discount or get them for tree. Read the terms carefully; some promotions are better than others.
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