Credit Cards

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If you want to know how to use a credit card and also if credit card will be useful in your case, then read on! Let us start with knowing the technical definition of a credit card to start with.

  • Credit Card is an electronic payment system, where users make use of a plastic card with magnetic tape inscribed on it to make a payment for any purchase of products or services.
  • By using credit cards, users make a promise to make payment for the products and services that they have bought with.
  • Every credit card has its credit limit determined by the issuer of the card.
  • Users can borrow money to buy products/services up to the pre-specified limit.
  • Users can also withdraw cash using credit cards. However, credit cards have limits on the cash withdrawal amounts as well.
Credit Card Vs Debit Card

Credit Cards are quite different from the debit cards, where you make payment through the card from your own savings / current account. There the cash gets transferred from your account to the merchant's account. However, it case of credit cards, cash is not transferred from your account. You get the product on credit and you make payment to the card issuer at a later point of time.

Credit Card vs Charge Card

Credit Cards are also different from Charge Cards where the total outstanding balance needs to be paid every month. While, in case of credit cards, you have the option to revolve the balance and make payment at a later stage. However, you need to pay interests on the outstanding amount though.

Why use a credit card and when?

Credit cards are one of the most preferred modes of payments these days. Consumers can buy various products and services using these cards. The merchant will swipe your card, enter the amount, and the payment will be made. It's quite an easy method. One can also use these cards to buy products online. In that case, you need to provide the details of your credit cards (like Credit Card number, CVV number, Name of the card holder, Card Expiry date etc.) to the organization that you are buying products from.

How Credit Cards Work?

After the application for credit card is received, the card issuer goes through the details of the applicants, depending on which the card account is approved. After approval of the account, the credit card is dispatched to the customer.

Once the customer gets hold of the credit card, s/he can start using that while purchasing any products or services. In some cases, the cardholder needs to activate the card (through phone) before s/he can start using it.

When cardholder purchases something using the card, s/he agrees to pay the amount spent to the card issuer. A receipt needs to be signed for the consent, a copy of which will be kept by the merchant and the other will remain with the cardholder. In some cases, cardholders also need to enter a Personal Identification Number (PIN). Nowadays, one can also purchase products online by using credit cards. In that case, you need to give the all the details of credit cards to the merchant. Credit cards can also be used by giving verbal authorization through telephone. These transactions are known as ‘Card/Cardholder Not Present’ (CNP) transaction.

When a payment is made through credit cards, the merchant first verify whether there is enough credit left in the card to make the payment. Credit Card Payment Terminal is used for this verification. The magnetic strip inscribed in the card holds all the data relating to the card.

In every month, the card issuer dispatch a statement to the cardholder indicating the purchases made during a specific time frame, known as bill period. Card holder needs to pay the amount within the ‘payment due date’ in order to avoid any financial charges and interests. Cardholders also have the option to revolve the balance and make payment at a later stage. In that case, the ‘minimum amount due’ has to be paid and the rest can be paid later. However, interests and other financial charges would be levied on the outstanding amount.