Weapons of Credit Control (General methods)

1. Bank Rate Policy: Bank rate is the rate of interest which is charged by the central bank on rediscounting the first class bills of exchange and advancing loans against approved securities. This facility is provided to other banks. It is also known as Discount Rate Policy.

2. Open Market Operations: The term “Open Market Operations” in the wider sense means purchase or sale by a central bank of any kind of paper in which it deals, like government securities or any other public securities or trade bills etc. in practice, however the term is applied to purchase or sale of government securities, short-term as well as long-term, at the initiative of the central bank, as a deliberate credit policy.

3. Change in Reserve Ratios: Every commercial bank is required to deposit with the central bank a certain part of its total deposits. When the central bank wants to expand credit it decreases the reserve ratio as required for the commercial banks. And when the central bank wants to contract credit the reserve ratio requirement is increased.

4. Credit Rationing: Credit rationing means restrictions placed by the central bank on demands for accommodation made upon it during times of monetary stringency and declining gold reserves. This method of controlling credit can be justified only as a measure to meet exceptional emergencies because it is open to serious abuse.

What is Charge Card?

Charge card are almost similar to credit cards but they don't have a monthly spending limit like $500, $5,000 etc. Its holder can make an unlimited number of purchases with his card, but he needs to pay back the entire balance in full each month or year as per policy.

Charge cards generally impose a fee and tack on penalties to discourage its holder from not paying back the balance. The cost of having a charge card is often significantly lower than the cost of having a credit card. For many consumers this is due to the interest related debt that can be racked up with the credit card.

What is Credit card?

It is a phenomenon that the credit card has become one of the essential needs of everyday life. People use it as they paper money. This is why it is called Plastic money as well.

Such a type of card can be defined as
"It is a particular style of card issued by an institution to its client on the basis of a special contract between the institution and the client. This card gives a tendency to its holder to purchase commodities or services on credit on behalf of the institution, from a particular space mentioned by the institution."

True credit cards have a set spending limit for example $1000, $5,000, $50,000, etc. based on the cardholder's credit rating and current income. If cardholder spends more money, his credit limit increases. If he chronically makes late payments on his monthly bills or skips payments either his limit will be reduced or his credit will be cut off, and the interest rate charged on the balance may be increased.