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The Forbes Guide to Credit Cards

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The credit card had a humble beginning. Diners’ Club introduced the first general-purpose credit card in 1950, followed eight years later by the first bank issued credit card. Americans have been using plastic credit cards since 1959 when American Express introduced plastic to replace its cardboard predecessor.

Today, credit cards have become ubiquitous in the United States. According to the Federal Reserve, Americans used their credit cards to pay a record 40.8 billion times in 2017, and those payments totaled $3.6 trillion. Statista reports more than a billion credit cards in the U.S. today and, according to the Federal Reserve, credit card debt now surpasses $1 trillion.

There are several reasons for the explosion of credit card use. One is the security and convenience of using a card instead of lugging around loads of cash. Another reason is the boom in online shopping. There’s also the number of banks offering compelling cash and travel rewards to their card users. Some credit card issuers offer a 0% introductory APR on purchases or balance transfers as a way to market their cards. And then there is a credit card’s ability to help consumers build a credit history and score that will help them later if they want to take out a mortgage, borrow for a car, or do anything else (like rent an apartment) that might require a credit check.

In this Forbes Guide to Credit Cards, we cover these and other topics you need to decide whether and how credit cards should be part of your financial life.

What Is a Credit Card?

Credit cards, which are a form of revolving credit, work differently than installment loans. With an installment loan, such as a car loan, a consumer borrows a fixed amount of money at a fixed or variable interest rate. A minimum monthly payment is set in advance, and it doesn’t change over the course of the loan.

With credit cards, it’s a different ball game. First, most credit cards come with a credit limit. A credit limit of $10,000, for example, enables a consumer to charge up to $10,000 on the card. Of course, there is nothing requiring the cardholder to use any or all of the available credit.

Second, the minimum payment on a credit card varies based on the outstanding balance. As the outstanding balance goes up, so does the minimum payment. Conversely, as the balance goes down, the minimum monthly payment also goes down.

Third, there’s no term on revolving debt. A car loan, for example, typically has a set term (e.g., 5 years). With a credit card, a consumer can continue to use the card so long as the balance doesn’t exceed the card’s credit limit.

The Types of Credit Cards

There are several different types of credit cards. These include cards for those with no credit or poor credit, business cards, and those looking for rewards. Here are the major types of credit cards available today.

Secured Credit Cards

In the world of credit cards, you’ll find there are two broad categories: secured and unsecured. Both report your payment history to credit reporting bureaus. Most credit cards you see advertised are unsecured, meaning they don’t require a refundable deposit to use them. Secured credit cards, on the other hand, require a security deposit to open the account.

Secured cards will likely have the word “secured” attached to its name—for example, there’s the  Discover it® Secured card. To use this card, you’d deposit $200 to open a $200 line of credit with Discover. After eight months, your account, along with your other credit accounts, are reviewed monthly to evaluate your credit management. At that point, assuming you have paid off your balance every month and managed your other accounts well, Discover will likely refund your deposit and switch you to an unsecured card.

Secured vs. Unsecured
FeaturesSecuredUnsecured
Bases for credit limitRefundable security depositCredit history and income
Interest on carry-over balancesXX
Bonus offeringsXX
Rewards (i.e. cash back)XX
Report to national credit bureausXX
Accepted nationwideXX
Offers security and protection servicesXX
Helps build creditXX
Fees (i.e. annual fee, late fees)Depends on the bank’s offeringsDepends on the bank’s offerings

Unsecured Credit Cards

Unsecured credit cards are what most people think of as traditional cards. What follows are various types of unsecured credit cards.

Student Credit Cards

A student credit card is designed for college students with limited or no credit. Student cards usually come with low to no annual fees and an educational component in the form of rewards. Some banks and credit unions will offer statement credits for maintaining a certain grade point average, for example. Other card features include cash back or rewards points. The credit limit on student cards is often low given the applicant’s limited income and credit history.

Business Credit Cards

There are two types of business credit cards: small business and corporate. Card issuers will have different qualifications for each card. For example, what one bank considers a small business, another might not.

A small business credit card operates like a personal credit card and it’s commonly used to establish credit for a young business. It’s similar to a personal credit card in that the small business may not have enough credit history to get a corporate card and so the business owner applies for credit through their own name.

Businesses that have more scale and a credit rating from one of the business credit rating agencies meet the requirements for a corporate credit card. Corporate credit cards give companies with millions in revenue the flexibility of authorizing multiple users and earning business related rewards like air mileage.

These cards aren’t hard to come by so you can shop around to find one that meets your business needs.

Reward Credit Cards

Credit cards offer a variety of valuable rewards. From cash back to free travel, rewards credit cards seek to build loyalty with card holders by rewarding them when they use the card.

Here are the major types of reward credit cards:

Cash Back Credit Cards

A cash back credit card offers discounts on purchases by giving cardholders cash in the form of a check, direct deposit or a statement credit. Cash back rewards typically range between 1% to 6% on purchases. For cards that pay the same rewards percentage on all purchases, the rewards range is from 1% to 2% in most cases. As the rewards rate rises above 2%, the rewards are limited to specific categories of purchases.

When choosing a cash back credit card, look for one that matches your spending habits. For example, if you spend a lot on groceries, you could choose a card that gives you a higher cash back rate at grocery stores. If you value simplicity, however, you could choose a card that offers 2% in unlimited cash back on all purchases.

Another feature to consider is monthly and annual fees. If your annual fee is equal to or bigger than your one-year cash back earning potential, it may not be a good fit for you unless you’re looking for the cash back to cover that fee. Likewise, if your interest rate is high and you will likely carry a balance, then you may not even get a chance to enjoy cash back rewards, since those rewards are likely to be more than offset by the interest you pay.

Look at when you can redeem the cash back, as well. Some cards give cash back after you’ve earned a number of points at certain merchants, others give cash back after a certain number of days or months, and some give you instant cash back. Read the redemption process for earning cash back to determine if its worth your time and energy.

Travel Reward Credit Cards

Credit cards are tools that can be aligned with your lifestyle. Travelers looking to earn mileage or discounts on hotels and travel packages have travel reward credit cards as an option. There are bank cards that are great for general travel and then there are branded cards that are great for flights on specific airlines or stays at specific hotel chains.

You could get a travel rewards card through a financial institution such as your bank. Bank of America’s Travel Rewards credit card gives you unlimited 1.5 reward points for every dollar you spend, plus 25,000 bonus points when you spend $1,000 or more within the first three months.

Some travel reward credit cards double as branded cards. Airlines offer credit cards that help you accumulate frequent flier points, which you can redeem for flights, free checked luggage, preferred boarding or discounts with their partners like other airlines. American Airlines partnered with Citibank to produce the AAdvantage Platinum Select World Elite Mastercard, which comes with all sorts of bells and whistles such as earning up to 50,000 bonus miles.

Hotel reward cards carry similar benefits. You would use a hotel card to earn points towards discounted rates, room upgrades, extended checkout or a free stay. The IHG Premier Rewards Club card gives free stays to cardholders on their card’s renewal anniversary.

Maybe hotel and flight discounts don’t excite you? Car rental companies like Avis offer credit cards, too.

Once again, pay attention to the fine print of how you can earn points, as well as how you will redeem those points. Some travel rewards programs may require you to cover your own taxes when redeeming your travel points—meaning, for example, that a free flight might not be really free.

Branded Credit Cards

Stores and other merchants partner with card issuers to create cards offering rewards or cash back. The Amazon Prime Rewards Visa Signature by Amazon.com, Chase and Visa Signature gives Amazon Prime members 5% cash back on purchases made on the site and at Whole Foods stores.

Charge Cards

Unlike credit cards, which allow you to carry a balance into the following month for whatever interest charge you qualify for, charge card issuers require that you pay your balance off every month. If you choose not to pay the balance off, you will incur a fee.

Another difference is the credit limit. Charge cards do not have a pre-set spending limit; however, there are some retail charge cards that do. No pre-set spending limit doesn’t mean you access to endless credit. The bank can limit your credit to your regular usage of the card or your payment history.

Though charge cards are no longer as commonplace as credit cards, some financial institutions still offer them. They are helpful tools for people who prefer to not have long-term debt.

These cards may come with rewards programs, too. With American Express charge cards, for example, reward points could be one to five times your purchase amount. The only downside is these cards tend to come with high annual fees.

Subprime Credit Cards

Subprime credit cards are designed for borrowers who have poor credit scores.  Subprime cards often come with exorbitant fees on top of high interest rates. There are some, however, such as the Credit One Bank Visa, that keep their fees and interest rates in line with standard rates. If you have poor credit, your goal should be to rebuild your score so you can qualify for lower interest rates and save money in the long run.

0% Introductory APR on Purchases and  Balance Transfers

Some credit cards offer an introductory 0% APR. The 0% annual percentage rate is an introductory feature. Once you reach the end of the introductory period, the rate goes up to a standard credit card interest rate. Credit card companies may extend their 0% APR offers to purchases, balance transfers or both.

It’s important to understand the difference between 0% on purchases and 0% on balance transfers. With purchases, consumers pay no interest on their balance during the introductory period. Once the introductory period ends, the interest rates goes to the standard purchase rate based on the cardholder’s individual’ creditworthiness.

Balance transfers work differently. Knowing that consumers want to avoid interest charges on their revolving debt, some issuers offer balance transfer promotions to obtain new customers. Once the customer is approved, she can transfer her balance from an existing credit card to her new credit card with a 0% APR. While she’ll benefit from the 0% APR during the introductory period, most balance transfer cards charge a transfer fee of 3% to 5% of the amount transferred. A few cards, like the Chase Slate card, waive the balance transfer fee for those who initiate the transfer within a set period of time.

As previously suggested, shop around, compare features and go with a card that benefits you the most.

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Wealth

Jeff Bezos Is No Longer The Richest Person In The World After Amazon Stock Plunges

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Amazon founder and chief executive Jeff Bezos lost his title as the richest man in the world during after-hours trading on Thursday, after his ecommerce behemoth reported lackluster third-quarter earnings. 

Amazon shares fell 7% in after-hours trading, knocking Bezos’ fortune down to $103.9 billion. That puts him at number two among the world’s richest. The new number one: Microsoft cofounder and fellow Washington state resident Bill Gates, who is worth $105.7 billion. 

Bezos became the richest man in the world in 2018 and the first centibillionaire to ever appear on the The Forbes 400 that year with a net worth of $160 billion, ending Gates’ 24-year run as number one. 

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But the Amazon chief executive’s net worth drop isn’t entirely due to the decline in Amazon shares. Bezos transferred a quarter of his Amazon stake to his ex-wife MacKenzie Bezos as part of their divorce settlement, which was finalized earlier this year. MacKenzie Bezos is worth $32.7 billion, and among the top twenty wealthiest people in the world. 

On Thursday afternoon, Amazon reported a 26% drop in net income in its third quarter, its first profit decline since 2017.  In after-hours trading, Amazon dropped nearly 9% to $1,624 per share in the 20 minutes after the market closed. It has since rebounded slightly, hovering at $1,657 per share at 7:30 p.m. ET

The company said it is investing heavily in logistics and delivery infrastructure, with the goal of making one-day shipping the norm for Amazon Prime members.

READ MORE | Jeff Bezos Sells About $1.8 Billion Worth Of Amazon Shares In Three Days

The company disclosed during its second quarter earnings call in July that it had spent “a little bit” more than the estimated $800 million that it has previously said it would invest in one-day shipping infrastructure.

The company declined to disclose how much it had spent on one-day shipping in the third quarter. But chief financial officer Brian Olsavsky did disclose Thursday that the company plans to spend $1.5 billion in the fourth quarter, presumably to finance the one-day shipping initiative. 

Gates, meanwhile, has been out of Microsoft since 2014 when he stepped down as chairman of the storied company, though he remains a board member. He has sold or given away the majority of his Microsoft stake and diversified his wealth over time. He is now the co-chairman of the Bill & Melinda Gates Foundation, the largest private charitable foundation in the world. 

Bill Gates debuted on Forbes’ first ever billionaire list in 1987 with a net worth of $1.25 billion. Bezos first joined The Forbes 400 list of richest Americans in 1998, one year after Amazon went public, with a net worth of $1.6 billion. 

-Angel Au-Yeung; Forbes

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Lists

These Are The Biggest Givers On The Forbes 400

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This has been a year of record-setting in billionaire philanthropy. In September, Stewart and Lynda Resnick, owners of POM Wonderful and Fiji Water, pledged $750 million to the California Institute of Technology for environmental sustainability research.

In June, Blackstone cofounder Stephen Schwarzman donated $189 million to the University of Oxford—the largest single gift to the school since the Renaissance—to fund its work on humanities. The same month, Broadcom billionaire Henry Samueli pledged $100 million to UCLA’s engineering school, the largest gift ever to the department. 

Forbes tracks gifts and pledges like these as part of our ongoing coverage of charitable giving by the country’s richest people.

READ MORE | The World’s Most Generous Billionaires Outside Of The US

For the second year in a row, Forbes tracked the philanthropic giving of the richest 400 individuals in the U.S. and gave each member of The Forbes 400 list a philanthropy score. The score ranged from 1 to 5,  with 5 being the most philanthropic. List members for whom we could find no charitable giving information received an N.A. (not available).

Philanthropy Forbes 400
FORBES

Though the number of the biggest givers—those who scored a 5—stayed flat in 2019, those who received scores of 4 and 3 increased compared with a year ago.

The changes reflect two things: The country’s richest have gotten somewhat more generous, and Forbes had more information to work with this year. Some billionaires were willing to share information on charitable giving for the 2019 list who didn’t in 2018. As a result, four dozen people got higher scores this year than a year ago. 

This year, Warren Buffett led the list of top givers with $38.8 billion in lifetime giving, which is 32% of his net worth, and earned the top score of 5.

He was followed by last year’s biggest giver, Bill Gates, who has donated $38.5 billion so far. Two people who scored a 5 last year—Paul Allen and David Koch—passed away.

READ MORE: Forbes Africa | 8 Years And Growing

Billionaires like DreamWorks Pictures founder David Geffen and WhatsApp cofounder Brian Acton moved up to the top score after each scored a 4 last year. According to the latest tax filings, Geffen gave $38 million to his foundation in 2017, which brought his lifetime giving to about $1 billion.

Acton and his wife Tegan, on the other hand, have been expanding their philanthropic network, Wildcard Giving, which they founded in 2014 after Acton sold WhatsApp to Facebook. The couple has given away more than $1 billion to charitable causes.

2019 Forbes 400 Giving
FORBES

Forty-one billionaires, including Netflix cofounder Reed Hastings and software billionaire Philip “Terry” Ragon, got higher scores this year than last year. Some, like Stephen Schwarzman, earned a higher score thanks to giving in the past year.

Others scored higher because we were able to find more information about their lifetime giving, through new public documents or details provided to us by Forbes 400 members or their spokespeople. In September, a Los Angeles Times report revealed that B.

Wayne Hughes, cofounder of self-storage behemoth Public Storage, had anonymously donated about $400 million to the University of Southern California in his lifetime. Hughes, who scored a 2 last year, jumped up to a 4.

Private equity tycoon Robert F. Smith’s pledge in May to wipe out the student debt of the entire 2019 graduating class of Morehouse College generated lots of headlines but did not end up changing his score because the gift wasn’t big enough to move him up a notch. In many cases, fortunes grew faster than lifetime philanthropic giving. 

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To come up with the information on which we based our score, Forbes reporters looked at tax filings for charitable foundations, annual statements, SEC filings and news about new gifts. When possible, we interviewed Forbes 400 members and executives from their foundations. Some Forbes 400 members said they have chosen to donate anonymously, citing religious or privacy concerns. 

Our score is based on total lifetime giving and what percent of their fortune members had given away. We weighted these two factors equally. Some individuals were then bumped up or down based on several other factors, including whether they had signed the Giving Pledge, whether they had pledged significant donations, how personally involved they were in their charitable giving, and how quickly and effectively their private foundations distributed dollars. We didn’t count pledges or announced gifts that have yet to be paid out, but we took commitment to philanthropy—or lack thereof—into account.

Forbes has been tracking the wealth of the richest Americans since 1982. “Some of [the members] told us to drop dead,” James Michaels, veteran editor of Forbes, told the New York Times in a 1982 story about the list’s debut. “They said they wanted no part of it, that they’d sue us.

This happens in reporting.” At times, our reporting on philanthropic giving received a similar response. “The new philanthropy ranking is fundamentally flawed, in that it is biased in favor of those who make their gifts widely known, and against donors who choose to make their charitable contributions anonymously,” one current Forbes 400 member (who did not wish to be named) wrote to us last year.

-Deniz Çam; Forbes

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Cover Story

Mastercard: Diligent About Digital In Africa

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Mastercard knows only too well that technology can drive inclusive financial growth with simpler and more efficient ways to do business and life. And Raghu Malhotra, the man spearheading this trajectory in Africa, is also focused on social progress.


In many ways, Raghu Malhotra is like the brand he works for, leaving his footprints in different parts of the world, and in some cases, the most unlikely corners.

On a scorching summer’s day in June 2016, Malhotra traveled 100km east of Jordan’s capital city Amman, to a camp with white tents named Azraq built for the refugees of the Syrian Civil War.

In the desert terrain and hot, windy conditions, people had to queue for hours on end for plates of food handed out of visiting trucks. But some of them, displaced and homeless overnight, expressed their gratitude to Malhotra, President for Mastercard in the Middle East and Africa (MEA).

Mastercard, a technology company that engages in the global payments industry, had distributed e-cards, as part of a global collaboration with the World Food Programme, to the refugees that they could now use to purchase food and other supplies from local shops.

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 “I spoke to the people myself and saw what their lives were… Even those who were doctors with their families and were displaced… They said to me ‘you have restored dignity to our lives; you have no idea how demeaning it is to queue up to be given food’… We actually digitized how that subsidy for food was given. Some of these things go beyond economics,” says Malhotra. 

Beyond economics.

That very simply sums up Malhotra’s mandate for Africa as well.

The New York-headquartered Mastercard, ranked No. 43 on Forbes’ list of the World’s Most Valuable Brands, with a market cap of $247 billion, which connects consumers, financial institutions, merchants, governments and business, is fostering key partnerships across the African continent to help drive inclusive economic growth.

The idea, Malhotra says, “is to get our global skill-set to operate in its most efficient form in every local economy, at the same time, we must do good, and it must be sustainable.”

He calls Africa the next bastion of growth for various industries.

“As a company, we have stated we are going to get 500 million new consumers globally. And Africa plays a big part of that whole story… We want to be an integral part of various economies here,” says the man responsible for driving Mastercard’s global strategy across 69 markets.

Raghu Malhotra President for Mastercard in the Middle East and Africa. Picture: Motlabana Monnakgotla

“It probably took us over 20 years to get the first 50 million new consumers, in my part of the world, which is the Middle East and Africa (MEA). It took us probably five years to get the next 50 million, and last year alone, we put over 50 million consumers [in the formal economy] in MEA. That is part of our whole African story, so this is just not rhetoric; we are actually building our business on that basis.”

Home to four of the world’s top five fastest-growing economies, Africa has the fastest urbanization rate in the world, the youngest population, and a rapidly expanding middle class predicted to increase business and consumer spending.

It’s a continent of opportunity for global players like Mastercard with an eye on the potential of a booming consumer base and small and medium entrepreneurs, most of whom are still not a part of the formal economy. A large proportion of Africa is still unbanked. There is enough business opportunity in offering people digital tools so they can lead respectable financial lives.

READ MORE | The Monk Of Business: Ylias Akbaraly Talks About Secret To Success And Plans To Take Africa With Him

But it is in knowing that financial inclusion is not just about technology, but more about solving bigger problems, as the World Bank says in its overview for Africa: “Achieving higher inclusive growth and reaping the benefits of a demographic dividend will require going beyond a business as usual approach to development for Africa. Going forward, it is imperative that the region undertakes the following four actions, concurrently: invest more and better in its people; leapfrog into the 21st century digital and high-tech economy; harness private finance and know-how to fill the infrastructure gap; and build resilience to fragility and conflict and climate change.”

And in order to enable financial access, Mastercard has a balanced strategy in place, with the right partnerships for inclusive growth on the continent, Malhotra tells FORBES AFRICA.

“Every emerging market has different segments of people and you need to get the right product for the right segment. What we do is a balanced growth strategy across the continent based on timing, opportunity etc… Of course, because the bottom of the pyramid is much bigger, I think what we need is to adapt things differently; that is where the inclusive growth story comes from. That is where the opportunity is, but there is a second part to it…” And that, he summarizes, is advancing sustainable growth, doing good and bringing more transparency and efficiency.

The new pragmatic dispensation of governments in Africa towards ideas, technology and innovation has surely helped open up the stage to newer segment-driven products, especially as Africa already has such global laurels as Safaricom’s mobile money transfer and micro-financing service M-Pesa that took financial access to a whole new level. Also, sub-Saharan Africa remains one of the fastest-growing mobile markets in the world.

READ MORE | Feisty And Fearless Pioneers Thandi Ndlovu & Nonkululeko Gobodo

Malhotra says he finds African governments consistent in how they are rolling out their digital vision, and in trying to collaborate towards creating better ecosystems for their economies, though each is unique with its own dossier of problems.

“When I speak to various governments around Africa, I see a commonality of what their needs are and I also see a commonality in how they are trying to respond. So I think a lot of them realize running cash economies is a very inefficient way of doing things… Also, the consumer base is much more open to new technology because there is no bedded infrastructure or legacy infrastructure. I think where governments need to start thinking a bit more is how much do they want to do completely on their own.”

Part of this transformation on the path to financial progress is alleviating the burden of cash. Cash still accounts for most consumer payments in Africa. Mastercard, which started out as synonymous with credit cards, continues its efforts to convert consumers from cash to electronic transactions, and move beyond plastic.

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