Function

• Credit cards are a form of legal tender that allows its users to get the goods and services they want now and pay for them later. This is made possible because a bank pays for the purchase on the consumer's behalf and relieves the store of the responsibility of following up with the purchaser to collect the money. The card issuer extends a limited line of credit that the borrower can pull from and pay back in small chunks monthly.
  
  

Types

• An unsecured credit card is a line of credit issued to a borrower without collateral and is solely based on his credit and promise to pay. A secured credit card is a line of credit in which the borrower has to use financial collateral to secure the line of credit. A charge card is a form of an unsecured credit card in which the borrower must pay the full amount borrowed every month. They are not allowed to revolve the payment. Store cards are credit cards issued by department stores and other stores that can only be used within that particular store franchise.
  
  

How Credit Works

• The user completes an application for the type of card that he wants. The issuer reviews the applicant's credit report and credit score to determine his history of repayment. Once approved for a credit card, the user can use it for purchases at establishments that have merchant processing accounts. Merchant accounts are issued to merchants who are assessed a fee for the convenience of getting cash now instead of having to perform their own credit checks on consumers. Each month the user receives a statement detailing his uses and balance owed, in which case he can pay in full, make a minimum payment or pay some other partial amount that is more than the minimum.
  
  

Benefits

• Credit cards help users establish a credit history for much larger lines of credit or loans they may apply for in the future. Mountain State Centers for Independent Living lists one of the benefits of owning a credit card is that you can use it in cases of emergency. Credit cards also give you additional protection if something you bought is lost, damaged or stolen. Some credit cards also offer travel and cash rewards, discounts on purchases and special insurance.
  
  

Warning

• The Federal Trade Commission advises that you should never give your card to anyone else to use. The FTC also advises to use caution when asked to give your credit card account number over the phone or online. Carry on your person only the cards that you are using for the day to eliminate the losses if you were to lose your wallet or purse or it either were stolen. Keep all records of your credit transactions.