Mastercard-What you should know.

Written By Ellise Walsh

Tue 3/8/2005 10:38 AM

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.
here 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 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 issues.
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.