MasterCard-What You Should Know
by Ellise Walsh

If you are considering getting a MasterCard or you are having difficulty in meeting your monthly obligations due to credit card debt there are several things you need to know and understand about MasterCard and how a MasterCard works.

First and foremost, when you obtain a MasterCard you are not obtaining the card through MasterCard International, the corporation backing the symbol on the lower corner of the card. Credit cards can only be obtained through financial institutions who have a membership affiliation with MasterCard. If you already have several MasterCards you may have realized that they are backed by different banks. The payments collected for charges placed on the MasterCard are sent to the affiliate banks. Furthermore, each individual financial institution sets their own annual percentage rates; which means that if you carry several different cards you will most likely be paying varying interest rates. There are both advantages and disadvantages to this situation. One advantage is that this makes it possible for consumers to shop around for better interest rates. A disadvantage is that because it is feasible to shop around for interest rates many consumers get caught in the trap of continually switching balances from one card to another. This is a trap that proves to be quite financially dangerous. What usually finally occurs is that the consumer carries a multitude of cards, with balances on all of them.

In today’s complex and identity conscious society, credit cards are becoming much more complex than they were when they were first issued. Credit cards date back to the Twenties when they were first issued by companies in order for purchases to be made on credit at that business only, similar to modern department store charge cards. During the next twenty years this practice increased, until the first universal credit card was issued in 1950. Master Charge, now known as MasterCard, eventually was founded. By this time credit cards were beginning to be imprinted with a series of numbers in order to make the billing process easier. The first number in the series identifies the ‘company’ holding the credit card; whether it is American Express, Master Card, Visa, etc. Master Card’s number is 5. The next numbers represent account numbers, bank numbers and a check digit; although not all credit cards have the same quantity of digits.

Today consumers can choose between several different brands of credit cards, shop around for better APR’s and can even select a color, affiliation or logo that suits their lifestyle and personality. Additionally, it is possible to have a photograph of the cardholder placed directly on the credit card in order to facilitate identity verification.

Consumers shopping around for credit cards have several important matters to take into consideration. The first is the annual fee that is charged by some credit card issuers. Today it is quite common for many banks to advertise a no annual fee slogan, so there is really no point in throwing away money on this fee when it can be completely avoided. Secondly, most credit cards come up with an annual percentage rate. This is the interest rate you are charged when you carry a balance on the card. Every month there is a balance on the card, the annual percentage rate results in a finance charge you are required to pay. A popular marketing tool employed by many credit card issuers is advertising little to no annual percentage rate for a limited amount of time in order to gain new customers. While these rates can at first appear to be quite attractive, what generally happens is that the rates are raised after the initial time limit expires. Sometimes these rates are quite competitive and other times they are exorbitant. Interest rates on credit cards quite commonly fluctuate over time, in sequence with the economy. Consumers who shop around may realize that there are other benefits to be had with credit cards besides the lowest annual percentage rate. Some banks offer perks such as cash back, discounts and even travel points.

Most credit card issuers reward customers who maintain low balances and pay on time with higher credit limits or exclusive cards. Many exclusive cards such as a gold card or platinum card require minimum income levels and possibly a minimum credit score. When you make an application for a credit card, the issuing bank will take a look at several factors when deciding whether to approve you for the card. First, they will look at how you paid your debt on other bills and if it has been on time. Additionally, the bank will take into consideration the amount of debt you already owe, how long you have been at your job and finally how much remaining credit you have on existing cards. While you might think it would be in your favor to carry zero or extremely low balances, this is actually not true. Banks prefer to see slightly higher balances and not just for increased interest payments. All of that available credit is considered to be a risk that can be accessed at any time. If you have a zero balance on a card and do not use the card anymore, experts recommend that you close the account.



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