Credit card

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Credit cards are a form of consumer credit that offer a restricted line of credit for mostly retail spending and allow small monthly repayments at interest. Fallout from the recent turmoil in global credit markets has recently forced credit card issuers like banks and retail finance companies to start restricting and raising the costs of card credit.

The charge

Most consumer-based credit cards are issued by one of the four main providers: MasterCard, Visa, Discover and American Express, although the latter is more like a charge card because the account must be paid in full every month. Most cards are "branded" with the name of a bank that partners with its provider and profits from transaction fees. Providers compete on features ranging from the card's interest rate (also called annual percentage rate or APR) and credit-line limit to offering "rewards" like airline miles or account credit, and consumer-oriented websites let borroweres compare these features.

Accepting credit cards has become very popular with retail merchants because it lets them offer their customers credit without shouldering any of the risk or wasting time on paperwork, both of which the provider assumes. Merchants also use the information on credit card sales to make marketing pitches to their customers while the mostly fixed costs of those sales means relative costs shrink as sales grow, encourage merchants to increase credit-card sales volume.

The bill

But the recent credit crisis that has crimped debt markets around the world is also starting to squeeze the previously booming U.S. credit-card industry. Recent reports indicate that some large bank issuers are trying to cut off existing credit customers by lowering credit lines, closing some less active accounts and hiking APRs. Credit card delinquencies (non-payment by holders) recently hit a peak of 4.54% in the second quarter of 2008.