Credit Cards: Advantages and Disadvantages

Introduction
Credit cards are issued to the customers who are able to purchase goods and services. The card
holder is expected to complete payment as he/she promised to the card issuer and the amount to
be paid is agreed by the two parties. The agreed amount is paid later and any other charges
agreed upon. The card issuer, which is normally the bank, has two roles to play; that is to open
an account and to enable the customer to purchase on credit to the person holding the card. The
card holder is allowed to borrow money to be paid later to the dealer. This card has a
mechanisms of combining payment services which to be extended in credit a process called
credit extensions (Acikalin, 2015)
Credit card: Buy now and Pay More Later
The credit card approvals are mainly based on the credit score of the applicant and some other
factors which include the income and the credit card debt. The approved credit cards are
accompanied with an annual fee and low credit that is limited but with time, can be able to
improve the credit score. There are legislatures which ensure the regulation of credit fees
(Agarwal, Chakravorti & Lunn, 2010)
The credit card is usually used to buy now the goods and services so that you pay later. It makes
the consumers to continue in balance of debt, and the money is subjected to interest. A third
party is involved in credit card that pays the one who is selling and is compensated by the one
buying. After account approval by credit provider, the customer is issued the credit card and this
improves customer satisfaction and provision of friendly services (Jones, Loibl & Tennyson,
2012)

The customers, who are the card holders are allowed to use the cards to make purchases at the
merchants who accept that particular card. The credit card works in such a way that when the
purchase is already done, the card issuer is paid by the cardholder upon agreement. To show the
approval of the later payment, there is a receipt to be signed by the card holder that contains the
record in details of the card which includes the indication of the amount to be paid (Brown,
2017). One can as well indicate the personal identification number (PIN). Authorization can be
done verbally through a phone by sellers or through the internet process.
The cards are verified using electronic systems help in verification of the card so that it shows
the validity of the card and to know if the customer has enough credit to cater for the services. If
the cardholder pays the balance fully every month, then the credited card issuers waive all the
interest charges. It also applies full charges on interest on all the remaining balance starting from
the time the services were bought. Most financial institutions use a general calculation formula to
define the total interest amount that should be charged (APR/100 x ADB)/365 x numbers of days
revolved (Canals-Cerda & Kerr, 2015)
The credit card serve as revolving credit becoming a complex financial instrument with so many
segments of balances and each of these segments have different interest rate. Several interest
rates apply to various segments and these rates vary from card to card. If the card user is late in
payment, then the interest rate may shoot. The interest rates can increase if the issuing bank
comes up with a decision of raising its revenue (Herbst-Murphy, 2012)
Conclusion
In conclusion, credit cards are advantageous because they are convenient and they can offer
short-term loans to an individual who may not have cash. These loans are also advantageous