Credit card – saving angel for some and a wolf in sheep’s clothing for others. In short, credit cards are a debit card where the card issuer lends money to the card user who uses the card instead of cash to pay for goods and services. It differs from a debit card in that you do not immediately charge your own payroll account. You therefore spend money you do not have, and it can be a pitfall for some. With proper and careful use, however, the credit card can give you flexibility and security in everyday life.
The exchange of goods through the use of credit is traced back to the 19th century. The first cards came into circulation in the 20th century and were developed to create customer loyalty and were therefore largely accepted only by the company that issued it. The first debit card was called “Charg-It” and was introduced in 1946 by Jonas Wiggins. This credit card could only be used by Biggins bank account holders.
The first widely used credit card was created after a restaurant visit. By then, American entrepreneur Franco Namara had forgotten his wallet at home and this was the start of the Diners Club. In 1950, American Express was formed and in 1958 the company changed the credit card industry with a purple credit card for travel and entertainment expenses.
In 1959, American Express introduced the first plastic card, previously made of cardboard. The “modern” credit card came in 1966 when AM Bank established what we now know as Visa. That same year, a national credit card system was formed when a group of banks merged to create what is now called MasterCard, a direct competitor to Visa. American Express was the first credit card in Norway and was introduced to the market in the early 70’s.
Credit cards are used worldwide today and Visa or MasterCard logo cards can be used in over 25 million locations around the world. This makes them two of the most widespread payment systems worldwide. According to Porges Bank’s Annual Report on Payment System 2012, there are a total of 5.6 million credit cards in Norway. The use of credit cards has also taken shares from the Norwegian debit card system, Axel Bank. The market share for the debit card system has dropped from 80% to 71%, according to the report.
If you are careful when using your credit card and receive all the good tips, it may be more profitable to use compared to a debit card. The different cards often have unique advantages. Some credit cards have included travel insurance if you pay more than 50% of the total cost of the trip with the credit card.
Some cards provide cashback on various items or product groups. That is, you get a certain percentage of the purchase that will either be deducted from your next credit card invoice or returned to your account. One of the most popular benefits is perhaps the credit cards that offer fuel rebate, up to 81 penny discount per liter available. Credit cards are also easy to use and most come with their own online banking. To log into the online bank, a bankID code chip is required, but you can use a code chip from another bank.
The biggest drawback with credit cards is that one can feel rich with access to a large sum of money via the neat card in the wallet, and in shopping-related addiction it can be easy to forget that it has to be repaid. If this is not done within the fee-free period, it can quickly become very expensive.
Credit card companies mainly make money on fees and interest income, as well as transaction fees charged to the user site. Withdrawal of cash from ATM or counter is in most cases fee charged. Interest on late payment is often many times higher than on traditional bank loans.
How it works in practice
Credit cards are used for purchase on installment, which means that the card user distributes the repayment over several months or years. For that reason, the card issuer will check your credit score when applying. Normally, the invoice from the credit card company is settled once every month.
The card issuer is responsible for the settlement with the user site, ie sellers of goods and services, while you as a card user must settle with the company that issued the card. Pursuant to the Credit Purchase Act, this means that the card company is responsible for your lost expenses if the user site does not deliver the goods as agreed. The card user enters into an agreement with the card issuer, which stipulates conditions for repayment, credit limit and other terms. The agreement will also include the interest and installments the user must pay to the card issuer at all times.
Find the right credit card for you
There are as many credit cards on the market as there are consumers, so it’s a good idea to take the time to find one that suits your needs and desires. For someone who does not drive a car there is no point in applying for a credit card that gives fuel discounts and if you travel a lot you should choose one of the cards that offers travel insurance. For a good overview of what the various credit cards offer and what interest rates they operate on, see our credit card test . If you already know which card you want to apply for, you can simplify the application process and get a quick answer by doing so through Marcel here.