You've probably heard credit cards referred to as 'plastic.' The reason for this is obvious: they are made of plastic! Ask your parents how many credit or debit cards they have. You might be surprised at how many they have in their wallets!
How Credit Works
Before we talk about plastic credit cards, let's talk about credit itself. Credit is an arrangement between the seller and the buyer. The seller agrees to trust the buyer to purchase something, leave with it, and pay for it later. The seller is rewarded for her trust by prompt payment, or, if payment is not on time, the seller charges an additional amount called interest.
Imagine that you want to buy your friend's bag of marbles. You didn't bring any money with you when you went to her house, so you tell her you will pay her for it on Tuesday when you see her again. She gives you the marbles and you take them home, then you pay her the next time you see her. She has just given you credit. Now, if you forget to pay her back when you see her, she may not be happy and if you want to buy her bouncy ball next, she might decide you are not a good credit risk and refuse to let you take it without paying.
There are different kinds of credit arrangements. One is the installment plan method of buying. Say your parents want to buy an expensive item such as a new dishwasher. The store allows them to make a down payment; that is, they pay a certain percentage of the total price when they make the purchase. Then, over a period of months or years, your parents pay off the rest of the purchase cost, plus interest. If they fail to make the payments, the seller gets to take the item back (repossess it) and sell it to someone else.
Charge accounts are credit issued by individual stores or chains. These accounts come with credit cards that are only good at that particular store or one of its branches. Major credit cards (MasterCard, Visa, Discover, and American Express are the most popular) allow adults to buy goods and services at any business that accepts that particular credit card. Some parents get an extra credit card from their account that they allow their teenagers to use.
Credit and credit cards are not given to everyone. Businesses carefully screen out people who are a credit risk. How do they do this? They have a person fill out forms listing their assets, employer, yearly income, credit information (such as other credit cards owned), loans, and so on.
Adults who use credit cards must be careful with them. They should not share their account number with anyone and always check their bills carefully to be sure they charged everything that is listed.
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