The rate at which Americans are shifting into the use of Credit Cards to perform their transactions is increasing. Financial institutions such as banks and credit unions issue credit cards to people as an indication to merchants that the cardholders have satisfactory credit rating. The issuer of the card also commits to pay merchants if the credit card holder extends to pay the credit and then follows up the cardholder to ensure that he/she pays the credit. This issue makes most credit card users to run into debts.
The credit card issuer depends on applications in order for them to do business. Upon application, it is the responsibility of the issuers to carry out relevant investigations before they issue out credit cards to the applicants. The current trend in the use of credit cards in America gives an indication that “credit cards, smartcards and other electronic transactions will replace the cash medium in our near future” (Szwak, n.d., para. 27). There are many reasons to show why most Americana should not use credit cards in their transactions.
The main types of credit cards used in America include “Standard Cards, Charge cards, Limited Purpose Credit Cards, Premium Cards and Affinity Cards” (Financial Culture, 2010, para. 2). Standard cards are the most commonly used type of credit cards in America. These cards allow the users to purchase items and pay for them in installments. The users can also make full payment purchases using this type of card. Charge cards only allow for full amount payment on the month preceding purchase.
There are no financial charges levied on this type of card and the card issuer does not allow monthly installments in payment of commodities purchased. The charge card obliges the cardholders to compensate for the balance in full after a period of thirty days. Therefore, it does not qualify to be true credit card. On the other hand, credit cards permit the cardholders to build a constant balance of debt. This is subject to the interest charged on the card.
The limited purpose credit cards have a restriction to only some specific uses. Premium cards offer the users a chance to win prizes as they use them. They are only available to people with high credit scores. Companies, organizations or institutions issue the Affinity cards to members who are affiliated to them.
According to Lacoma (2010), Visa bank card is the commonly used card in America while the American Express card is highly rated in terms of customer experience. The cardholders use these cards to make common purchases, Student purchases and online transactions among other uses.
Even though credit cards make purchases and other transactions made by the cardholders easier, they have a number of disadvantages that are detrimental to the users. Because the procedures of using credit cards are simple, most people are likely to overspend and run into serious debt. When people use credit cards, it does not strike them that they are spending much money as much as it can strike them when they are using cash means to carry out transactions.
Therefore, lack of carefulness in the use of credit cards can make the credit card users to spend beyond their limits and run into bankruptcy. Students using credit cards to finance their education needs may as well use them for other purposes or spend too much creating debts, which are hard to cover. All types of credit cards currently in use in America have their own disadvantages.
It is a requirement of the banks and credit unions that the cardholders pay a certain percentage of what he/she uses in transactions as profit. This makes the creditors to use much more money than they could use in a cash transaction operation. The unions and banks also charge high credit card rates, which in the long run the cardholders have to count as expenses on their accounts.
The issue of use of credit cards has led to inflation of commodity prices to carter for the transaction costs involved in transferring the money from the banks or credit unions to the merchants. The costs involved in the use of credit cards include interest expenses, operating costs and charge offs. The charge offs are usually borne by the credit unions and banks. However, if the charge offs are large, the credit unions may subject the creditors to lawsuits or arbitration.
Another problem with the credit card use is fraud. The safety of a credit card depends on the confidentiality of its number that should be kept as secret as possible. If any other person apart from the card owner gets access to the card or its number, he/she can make transactions with that card on the account of the card owner.
This can present great losses to the credit card owners. Most of the banks and credit unions in America are determined to reduce the levels of credit card fraud to manageable levels but due to their interest in profit maximization, they cannot do this if the benefits are not sustainable. Internet and electronic theft of credit card information in America is a common practice, which makes the use of these cards over online transactions insecure.
The use of credit cards commits the future salary of the credit card holders. Without proper planning and careful use of these credit cards, it is possible for an individual to spend more than he/she can pay out of his/her salary. This often brings about problems of payments, which in turn leads to loss of credibility of the creditors. Most delays in credit payment in America leads to a bad report from the credit bureau, which can in turn create more problems like qualification for a job or a loan.
In conclusion, credit cards offer people a chance to buy goods and services in credit with the hope of paying the amount used to the credit unions or banks offering the services of credit cards. Most people in America and the world at large consider credit cards, as an extra source of income, which is not the case. The people have to pay the amount they use together with an interest to the banks and/or credit unions.
Due to the ease with which people use credit cards to carry out transactions, any body can use them up to and including the minors. People also use credit card numbers to carry out electronic and especially online transactions an issue that presents an opportunity for credit card fraud.
Even though there are other methods people can use in carrying out transactions like debit cards and other modern means, most people in America still prefer the use of credit cards, which in actual sense adds more to their problems. Because of the disadvantages and problems associated with the use of credit cards in America, most Americans should not use Credit Cards.
Reference list
Financial Culture. (2010). Different types of Credit Cards in USA. Web.
Lacoma, T. (2010). What are credit cards used to purchase most? eHow, Inc. Web.
Szwak, A. D. Credit cards in America. The ‘Lectric Law Library. Web.