Understanding the Financial Sector: Credit Card Companies and You

This is a follow-up to "Understanding the Financial Sector: Banks" and "Understanding the Financial Sector: Insurance Companies."

I find it amazing that investors and consumers alike do not fully grasp how the consumer credit markets operate, what companies are involved in the various aspects of the credit card market and how credit cards can be effectively used. Given that April is Financial Literacy Month, it's an opportune time to delve into these issues.

Enticing Incentives

Credit cards enter our lives in many different ways. The process usually starts with a solicitation in the mail with an offer for a "zero percent balance transfer" if you open a Chase card.

Or perhaps you see a sign by the store checkout counter, offering "10% off your first purchase" when you sign up for a Wal-Mart  card "today!"

How many of you enjoyed Capital One's "No Hassle Reward" television commercials so much that you accepted their card offer?

Get the Green Card, the Gold Card, the Blue Card, the Plum Card or the Platinum Card from American Express. Get them all (!) and put together a rainbow of cards because "membership has its privileges."

But the card card introductions that really get under my skin are those checks I get in the mail for "cash advances."

Yes, there are many incentives and promotions that may lure you into opening a credit card account or borrow money, but most people never read the application or understand the terms of the lender's agreement.

It's important to note that not all cards are the same. There are basically three types of cards that are available to consumers: charge cards, credit cards and debit cards.