What Is A Credit Card?
Put simply, a credit card is just a small piece of plastic that
easily fits in your wallet. Well, it's not 'just a piece of
plastic'; it's a very powerful piece of plastic which can be
regarded as a compressed form of cash. We can define credit
cards as a credit system that allows the consumer to borrow
money on the fly from a bank or a financial institution and use
it to make payments to the merchants.
In order to obtain a credit card, the consumer needs to fill-in
an application form that is actually like an agreement between
the credit card supplier and the credit card consumer. The
credit card supplier approves the application form and provides
the consumer with a small piece of plastic (i.e. the credit
card). This plastic (or credit card) contains electronically
encoded security information in the form of a magnetic strip
(which is generally located at the back of the credit card).
This information is used for authorizing payments whenever the
consumer uses the credit card. The consumer can use the credit
card for shopping at merchant outlets or on the internet etc. Of
course, this is subject to merchant's capability to accept
credit card payments. Accepting the credit cards is, however,
not enough. The merchant should be able to accept payments made
through the credit card provided by that credit card
organization (of which you hold the credit card) i.e. VISA,
MasterCard etc. You can also use credit card to withdraw cash
from ATMs (automatic cash machines) - also known as cash
machines or Day/Night machines.
There are eight main credit card organizations and most of them
operate in a lot of countries world wide. These are American
Express, Citi, Diners Club, Discover, JCB, MasterCard and VISA.
Master card and VISA are probably the most popular ones. Then
there are credit card suppliers or issuers who have tie-ups with
these organizations and issue credit cards on their behalf e.g.
you have various banks that issue VISA cards (like HSBC VISA
card)
To make a payment using a credit card, the credit card has to be
either swiped into special credit card processing machine (when
shopping in person at shops) or the details of the credit card
have to be entered on the merchant's website (when shopping
online). The credit card supplier sends across the bill for
these transactions to the consumer who is then required to pay
either the full amount or a partial (minimum) amount. If you pay
in full, the credit card supplier doesn't charge any interest on
the amount you owe, otherwise the pre-agreed interest rate is
charged. If you don't pay even the minimum, you might land up
with a late fee too. Moreover, the credit card supplier
generally puts a limit on the maximum amount you can spend per
month using your credit card.