History of Credit Card Benefits in the U.S. - MoneyTime

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Although credit cards and credit card benefits are well-known now, the current version was developed over decades in the 20th century. Department stores and even oil companies offered their specific cards, which were metal charge plates, that could be used for their business. Not much has changed in that respect as department stores still offer credit that can only be used at their store.

In the 1940s, airlines and banks began their own iterations of credit. Airline tickets could be purchased from various airlines with credit, while a bank card was specific to the local bank. The credit game changed dramatically in 1950 when four men founded Diners Club, the first credit card that could be used widespread. What was called a credit card then is what we now know as a charge card in that the bill had to be paid in full each month. The original cards were made of cardboard!

American Express became the first U.S. card to expand outside of the country and replaced the cardboard card with a plastic one in 1959. The modern-day version of the credit card with revolving credit and monthly finance charges came about when banks got into the credit card business full-scale, beginning with Bank of America mailing cards to customers in Fresno, California in 1958 and eventually being licensed as a general-purpose card in 1966.

Where We Are: Credit Cards Today

Today, consumers believe enough in credit card benefits that 183 million people in the U.S. own a credit card, according to Census estimates. Nearly 45% of that number have revolving credit, meaning they are not paying off the full balance each month. 

Most of those who have a credit card have multiple cards, atoning for the fact that there are 1.27 million credit cards in use in the U.S. With approximately 25% of credit card owners not showing any activity, the percentage of active card users who are not paying off their balance each month is a clear majority.

The average number of cards held by consumers has continued to rise since 2011 and is nearing 2.5 cards per owner. In the final quarter of 2018, U.S. consumers had racked up a staggering $870 billion in credit card debt, yet the default rate has continued to decrease, meaning that many consumers are able to reap credit card benefits without paying at least the minimum payments each month.

Credit Card Benefits: A Safe Way to Spend 

One of the most important credit card benefits is consumer protection they are afforded. Unlike debit cards, where the money is instantly taken out of your bank account, there is a time-lapse before funds are removed with your credit card. This allows you time to report a stolen card before money has actually been deducted. 

Once you report your card stolen, your credit card company will put an immediate hold on the card’s use, prohibiting further use and keeping you from being liable for fraudulent purchases. Among other credit card benefits are the ability to get a charge reversed if you purchase an item that turns out to be damaged or the wrong item.

By law, you are not liable for more than $50 of fraudulent charges as long as you report the fraud as soon as you become aware of it, which is an important reason to be diligent about checking your credit card activity! This is automatic protection, but issuers offer other credit card benefits specific to protection, including notification to confirm a large purchase or one made in another country.

Financial Credit Card Benefits: Preparing Your Future

Using a credit card responsibility and making regular payments have significant benefits for your credit score, which is a critical factor in how much you pay for major purchases and in getting all types of loans. 

Credit card use is reported to all three major credit bureaus (Equifax, Experian, and TransUnion). This becomes an essential factor in what interest rates you pay when you make large purchases like buying a home or a car. Both responsible use and length of time you do so improve your credit score immensely and lower your credit card interest.

Other credit card benefits are convenience and ability to replace if lost or stolen. If you carry around large sums of money, you are unlikely to ever see that money again if you misplace it. If you lose your credit card, you can alert the company and get a new card without incurring any charges put on your card. The convenience of being able to pay for almost anything anywhere with a credit card is a huge benefit and the majority of online purchases are made with credit cards.

If you are traveling outside the U.S., you don’t have to worry about exchanging cash for local currency when you have a credit card as they are accepted worldwide. You do want to check which credit card benefits your card issuer provides for international travel as some cards do not charge any fees when you take money out at an international automated teller machine (ATM).

Disadvantages of Using Credit Cards

Although credit card benefits are numerous, there are disadvantages to using credit cards, particularly when you are unable to make payments. With a large number of customers with revolving credit each month, many people can get into large debt with mounting debts on top of high-interest rates.

One of the main credit card benefits — the convenience to use them anywhere — can also be a major detriment if not used properly. It can make it much easier to make purchases that you would not have ordinarily made without considering the long-term effects if you don’t have the money to cover the charge when the bill comes. 

Credit cards tend to have high-interest rates, particularly for those without great credit, and the costs can add up quickly. As the balance rises and particularly if you max out your card, you can find yourself in financial trouble. You may also face more fees on top of the interest when you fail to make payments.

What to Look For When Applying for Credit Card

One of the foremost factors to consider when applying for a credit card is the interest rate commonly referred to as the APR (Annual Percentage Rate). Even if you intend to pay off your credit card each month, circumstances could arise that would make that too difficult and having a low APR will save you money. When you make consistent payments, you improve your credit score and could seek to lower your APR in the future.

Make sure that the credit card benefits any issuer offers do not come with any strings attached. There are plenty of credit cards that offer valuable rewards for using the card and do not charge an annual fee. 

Depending on your credit, you may have a wide range of credit limits available to you. Make sure you consider your own spending habits and discipline. Sometimes it is best to have a lower credit limit, particularly if you are trying to build your credit for the first time, and ensure you will not spend more than you can afford.

Understanding Your Credit Score

Before searching for the right credit card for you, you need to be aware of the role your credit will play. The main credit tool used in the U.S. is FICO which is used in more than 90 % of lending decisions. Five main credit categories of credit data are taken from your credit report to make up your FICO score. 

The top (35%) is from your payment history, which is why paying your bills in a timely and consistent fashion can be one of the greatest credit card benefits. Additionally, 30% is based on how much you owe, which means 65% of your credit score is based on what you owe and how consistently you pay your bills.

The other 35% of your FICO score is made up of the length of the credit history (15%), credit mix/different types of credit (10%), and new credit (10%).

Finding the Right Credit Card For You

credit card benefits

There are multiple online sites that can help you choose the right credit card for you, but make sure you are seeking unbiased information. NerdWallet has a credit card page that has a search specific to your needs and financial situation. 

The page also updates information on top credit cards for specific purposes, whether you are looking for balance transfers, rewards, and building good credit. In addition to making recommendations, the site also gives pros and cons for each card so you can make an informed decision for your situation.

CreditCards.com offers a similar page that highlights top cards in various categories. In addition, you can filter by which category applies to you and offers the best credit card benefits in that category. The categories include low APR (or 0% APR for those with great credit), cards with no annual fees, and even if you are someone with fair or bad credit.

How Multiple Credit Cards Affect Your Credit

The number of credit cards alone is not the whole story in determining your creditworthiness. In fact, that number is only a determinant in the smallest weight category. That list is not limited to credit cards as it also includes car loans, student loans, and mortgages.

Having more credit cards, with good payment history, can actually boost your credit score. It is not unusual for those with very high credit to have more cards than the average consumer, very possibly because their excellent history makes it easy for them to get credit cards. If you have a lot of cards, particularly if you have opened a lot of them recently, it can be a red flag to card issuers.

Far more important than how many cards you have is what you do with them. Reaping credit card benefits and having a good credit score revolve around making regular payments and making them on time. It is better to have 20 cards and make every payment every time than to have two cards and miss payments.

Who Are The Major Credit Card Companies?

Each of the 10 biggest credit card issuers in the U.S. has at least 18 million cardholders so each has to make a case for its credit card benefits to attract customers. Many customers hold cards from several major companies, taking advantage of the best each has to offer.

There are several advantages to choosing a name you know and who others are using as well. You don’t have to go far to find out what friends, family, and customers think of any card issuer and what credit card benefits mean the most to them.

Visa and Mastercard are by far the two largest credit card companies in the U.S. and they use banks and other credit card issuers for their cards. Visa, with 323 million cardholders, is accepted by more than 10 million merchants worldwide. Mastercard is available in most countries in the world and has more than 190 million U.S. cardholders.

Whether you are choosing to go with the biggest brands in the world and another issuer, your credit history, and financial future depend on you. Use your cards responsibly and you will see credit card benefits in numerous ways.

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