Credit Card

Credit Card

A credit card is a card authorizing the holder to make purchases on credit. Credit cards are issued by financial institutions and non-financial businesses (eg, department stores, gasoline companies). Unlike financial institutions' cards, those issued by non-financial businesses are accepted only at their respective companies. Billings are usually monthly, and an interest-free grace period of approximately 30 days is generally given if full payment is made for balances outstanding by a stated date. Cash withdrawals can be made using cards from financial institutions and some others, with interest charged from the date of withdrawal. Credit-card companies and banks issuing cards usually charge businesses a percentage of the bill as a handling charge, and charge the card user a fee.

There are three main financial institution-issued cards: MasterCard, Visa and American Express. In 1996, 30.2 million MasterCard and Visa cards from 17 financial institutions in Canada were in circulation, in addition to American Express and those from non-financial businesses. Outstanding balances from these cards accounted for 14% of consumer credit and 4% of total household credit. Some credit cards are affiliated with other businesses for mutual benefit, with rewards going to the bearer of the card or donations to a designated charity.

Major changes in credit card numbers and use are likely to occur as consumers increase their use of debit cards and stored-value cards. Debit cards result in the purchase amount being immediately deducted from the customer's deposit account; as such, the customer does not receive any credit. Stored-value cards, as the name implies, are cards equivalent to cash. A holder "loads" up the card with cash value by debiting his or her deposit account. The purchase amount is deducted from the card at the point of sale. These are relatively new and have not yet been widely adopted.