If you are like most Americans, you are carrying around a few credit cards. Recent data from Fair Isaacs, or FICO, indicates that the average American is holding nine credit cards. And chances are also quite good that you have a mix of cards that bear the Visa, MasterCard or American Express logo. But exactly what is the difference in the three?
Payment Networks
The logo on your credit card, at least in the case of Visa and MasterCard credit cards, simply refers to the payment network that processes the credit card transactions that are made with the credit card. They do not refer to the specific bank that issues it. For example, the card may be a Visa card, issued by Capitol One or HSBC Bank, but when you make a transaction, it is processed by the Visa payment network. The payment network is basically a computer system that allows transactions to be processed. They neither issue credit cards nor do they turn you down for one. The bank that issues your card, no matter what logo it has, sets the limit for the card and determines the terms for the card, including the interest rate. Moreover, the bank, not the payment network, will absorb the liability if you default on the card. There is little difference in using a MasterCard or a Visa credit card; any differences between the two would be due to the terms that are laid out by the bank that issues the credit, not by Visa or MasterCard in any way. You can use both branded Visa and MasterCard credit cards at twenty million different merchants around the world, and in more than one-hundred-and-fifty countries.
American Express is Its Own Bank and Payment Network
Unlike Visa and MasterCard, American Express is both the issuing bank and the payment network for cardholders, in most instances, at least. While it is true that AMEX, as it is sometimes referred to, has begun to partner with some issuing banks, for the most part, it is both issuer and payment network for its cards. American Express was once thought of as the “charge card” for the wealthy – and for a long time they only offered charge cards (which are cards that must be paid off each month in full). Now they offer credit cards, too, and they cater to those with good to excellent credit.
Which Should You Choose?
When choosing the credit card that is best for you, it does not really matter if the card is a Visa, MasterCard, or American Express. That is merely the logo. What does matter is if the card is a good value for you. Some questions to ask before applying for a card, regardless of the brand:
- Will I be carrying a balance on the credit card? If so, then the interest rate is super important. If you are not going to carry a balance and plan to pay off the card each month, then the interest rate may not matter to you at all.
- What is the interest rate or APR on the card? Some credit card issuers and banks lure customers in with attractive introductory rates that skyrocket once a period of time has passed. And with the economy in a continued state of uncertainty, banks are always looking for ways to make you pay more. For example, if you are a day late with a payment, your account may start getting charged the “default” rate, which is a rate that can be in excess of 20%.
- Do I get a grace period? The grace period on any credit card is important, since this is a period of time after you charge a purchase to the card during which no interest is being added.
- Does the card have an annual fee? Financial experts advise that if a card charges an annual fee, it is usually best to skip it altogether.
As you can see, Visa, MasterCard or American Express – the brand matters little. It is the rates and terms that you need to pay attention to when choosing a credit card.
Updated: January, 15 2012