What is a credit card?
A credit card is a thin rectangular piece of plastic or metal issued by a bank or financial services company, that allows cardholders to borrow funds with which to pay for goods and services with merchants that accept cards for payment. Credit cards impose the condition that cardholders pay back the borrowed money, plus any applicable interest, as well as any additional agreed-upon charges, either in full by the billing date or over time
Types of Credit Cards
Most major credit cards—which include Visa, Mastercard, Discover and American Express—are issued by banks, credit unions or other financial institutions. Many credit cards attract customers by offering incentives such as airline miles, hotel room rentals, gift certificates to major retailers and cash back on purchases. These types of credit cards are generally referred to as rewards credit cards
To generate customer loyalty, many national retailers issue branded versions of credit cards, with the store’s name emblazoned on the face of the cards. Although it’s typically easier for consumers to qualify for a store credit card than for a major credit card, store cards may only be used to make purchases from the issuing retailers, which may offer cardholders perks such as special discounts, promotional notices, or special sales. Some large retailers also offer co-branded major Visa or Mastercard credit cards that can be used anywhere, not just in retailer stores.
Secured credit cards are a type of credit card where the cardholder secures the card with a security deposit. Such cards offer limited lines of credit that are equal in value to the security deposits, which are often refunded after cardholders demonstrate repeated and responsible card usage over time. These cards are frequently sought by individuals with limited or poor credit histories.
Similar to a secured credit card, a prepaid debit card is a type of secured payment card, where the available funds match the money someone already has parked in a linked bank account. By contrast, unsecured credit cards do not require security deposits or collateral. These cards tend to offer higher lines of credit and lower interest rates vs. secured cards
Credit Card Features
Here are most of the credit card features that many people value:
- Big sign-up bonuses. Many credit cards offer hefty sign-up bonuses, with the magnitude of the bonus fluctuating over time. For example, a card might offer 50,000 “points” if you spend a certain sum within your first three months, and those points could be worth $500 or more in value when redeemed. This is especially true of travel-related credit cards.
- No annual fee. Most credit cards don’t charge an annual fee, so it’s easy to avoid this fee. Note, though, that sometimes a reasonable fee can be well worth it — such as if a card charges $99 per year while offering $300 or more in value.
- No penalty APR. A penalty APR is what happens when card companies raise your interest rate, often to 25% or more, if you’re late paying a bill. If you’re carrying, say, $6,000 in debt with a 16% APR and your rate suddenly jumps to 30%, your annual interest cost can surge from $960 to $1,800. Study a card’s fine print to see whether there’s a penalty APR, and consider avoiding the card if it’s there. Plenty of cards don’t have this feature.
- Low interest rates. Paying off your bill in full each month is the best way to use a credit card, but if there’s a chance that you will occasionally be carrying a balance, you should favor cards with an interest rate range that’s low relative to others. If you’re getting a card with an initial 0% APR, find out what the rate will likely be once that teaser rate expires.
- Zero percent interest. If you’re looking for a good balance transfer card, aim for one that will charge you no interest for anywhere between about 15 months and 21 months. The longer the period the better, but even 15 months can be enough depending on your situation.
- No balance transfer fee. Some balance-transfer cards will charge you about 3% to 5% of the amount you transfer from another card. That can be substantial — perhaps costing you $240 on a $6,000 transfer. That can still be worth it sometimes, but favor cards that charge no such fee, at least in the initial period when you make your transfer.
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- No foreign transaction fees. Without this feature, if you spend money abroad or with a foreign-based retailer, you’ll see currency-exchange-related fees on your statement. This feature can save you a lot if you’re a frequent traveler abroad — and even if you just make purchases from online retailers based in foreign countries.
- Credit-boosting tools. It can be helpful to be able to check your credit score now and then, if you’re working on paying off debt and increasing your score — and even if you’re not, as you may want to verify that your score is still good. Many cards these days give you access to your credit score — and some even print it each month on your bill.
- Cash back — or points or rewards — that can be earned as you spend with your card. You can find plenty of cards that pay you 1.5% or 2% cash back overall on your purchases, and ones that offer up to 5% or 6% back on certain categories, such as supermarket spending. Some cards have pre-set cash-back rates for certain categories, while others rotate categories that earn extra-big rewards every three months — sometimes even letting you choose the categories.
- Travel perks. Some travel credit cards will give you access to VIP lounges in airports and free checked bags, and some will reimburse you for the cost of applying for membership in the TSA PreCheck or Global Entry programs that help you avoid long security lines at airports (and let you keep your shoes on!). Other travel-related perks that many cards offer include roadside assistance and rental car insurance. (With some cards, though, the rental car insurance is secondary, meaning that it covers expenses your own car insurance doesn’t and still requires you to file a claim with your insurer, which might trigger a rate hike.) Visa’s higher-end Signature cards let you get low rates and more (sometimes including room upgrades, free nights, and late check-outs) at more than 900 hotels in its Visa Signature Luxury Hotel Collection when you book through the Visa website. Many Visa Signature cards also reimburse you up to $3,000 for lost luggage.
- Purchase perks. Many good credit cards offer extended warranties on qualifying purchases you make, and/or purchase protection, covering theft of or damage to an item you buy for a period of time. Some cards also offer price protection, refunding you the difference if you find a lower price for something you recently bought. The best shopping credit cards offer benefits such as free shipping on items purchased at the sponsoring retailer, the ability to return items without a receipt, or money donated to charity whenever you use the card.
- Investment benefits. It’s great to get credit card benefits related to your purchasing, but most of us need to be saving for retirement, and some credit cards can help with that. Some, for example, will deposit any cash rewards earned into an account you specify, such as your IRA or a 529 college saving plan.
How to qualify for the best credit cards
It’s very useful to know what to look for in credit cards, but once you have zeroed in on the best credit cards for yourself, there’s a good chance you’ll need a high credit score to be approved for them. What’s a high credit score? Well, basic (non-industry-specific) FICO scores, which are used by about 90% of top lenders, range from 300 to 850. Here’s how the folks at FICO rate the scores:
How Card Cloning Fraud Works
Most credit card cloning fraud is done through the use of skimmers. Skimmers read credit card information such as numbers, PINs, CVV data through the magnetic stripe, and can be attached to hardware such as point of sale (POS) terminals, or ATMs, allowing them to steal whoever uses that hardware’s information.
Criminals can also create a faux keypad on POS terminals or ATMs that allow them to steal PIN information.
Once the information is stolen, the criminal can then make a physical credit card linked to another person’s money. The original cardholder may not even realize that this has happened, however, it is possible to tell by looking at their financial statements, bank accounts, or by seeing if their credit score has changed.
Due to all of the contactless scanning technology, it is now possible for criminals to steal card information just by having a concealed scanner on them while walking down the street, allowing them to steal the card information of anyone who is close enough in proximity to them.
WHAT IS A CLONED CREDIT CARD
Creating a cloned credit card. Crooks use stolen data to clone credit cards and make fraudulent purchases with the counterfeit version. Armed with data from your credit card, they use credit card cloning machines to make new cards, with some thieves making hundreds of cards at a time.
Not to be stopped when asked for identification, some credit card thieves put their own names (or names from a fake ID) on the new, fake cards so their ID and the name on the card will match.
Any cards that don’t work are typically discarded as thieves move on to try the next one. Cloned cards may not work for very long. Card issuer fraud departments or cardholders may quickly catch on to the fraudulent activity and deactivate the card
How Financial Institutions Can Combat Credit Card Cloning Fraud
Implementation of EMV Chips
The implementation of Europay, Mastercard, and Visa (EVM) chips has been one of the biggest advancements in the fight against card cloning since they are safer alternatives to magnetic stripes. They use payment information that is encrypted to make it exceptionally difficult for criminals to clone cards, but EVM chips still have their vulnerabilities.
Even if their cards have EVM, people are more likely to use the magnetic stripe at POS terminals due to the familiarity allowing their credit card information to potentially be stolen. Also, a recent study from a security firm stated that cybercriminals have found a method to make purchases with a magnetic stripe card using data that was meant for EVM chips.
This gives insight to the upsetting reality that is: it is almost impossible to get criminals to stop cloning cards because they will always try and find a workaround.
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