What Is A Credit Card?


Most people don't like to carry too much cash or simply cannot pay for all goods and services they need with their own savings. Most of the times, they are presented with two options – they either apply for a credit card or get a loan. However, either option is more difficult within recent years than it has been before, as financial institutions have lost the will to take unnecessary risks upon themselves and are more reluctant to giving loans or approving credit cards. The paragraphs below will help you get familiar with basic notions related to credit cards, what makes credit cards unique among other types of cards and which types of credit cards you can choose from.

What is a credit card?


A credit card is nothing more than a small plastic card, which you can use to make various payments, instead of carrying cash with you. The credit card you get is backed up by a revolving account, from which you, the holder, can withdraw (borrow) money up to a certain extent, set by the type of credit card you got. The most common examples of revolving accounts are the credit cards released by major financial institutions and department stores. Credit cards issued under some of the major brands include: MasterCard, Visa, American Express, Diners Club, Discover Card and others.

As aforementioned, the credit card allows you to withdraw only a certain amount of money, for which you have to pay an interest rate. This interest rate slowly declines as you pay off your debt. All revolving accounts that you have or have had recently will appear on your credit balance, including your payment history, which is closely monitored.

The more promptly you pay off your credit for all debts, the higher the chances for you to get another credit from potential creditors are. On the other hand, if you are late in paying your debt, this will reflect negatively in your credit balance and your chances of being regarded favorably by future creditors decrease.

What is a credit card cardholder, issuer and accepter?


The credit card holder is usually the person to whom the institution issues the card. This person pays off the debt. A special type of credit card is the corporate credit card, where the credit card is issued in your name, at the company’s request, but the payments are also made by you. Corporate credit cards are meant to cover the employee’s approved work-related expenses. Of course, you will be paid back the money by your company, based on justificatory papers.

The credit card issuer is any company that issues credit cards. There are 10 different types of possible credit card issuers, identified by the first number on your credit card. These categories are – ISO/TC 68, airlines, airlines and other industry assignments, travel and entertainment companies, banks and financial institutions (represented by the numbers 4 and 5), merchandising companies, petroleum companies, telecommunications and national assignment.

The credit card accepter is any company, institution or individual that accepts payments by credit card for their products and services.

What is a credit card holder agreement?

When applying for a credit card and you meet all the requirements, you will be asked to sign a document that certifies that you acknowledge and agree to the terms and conditions of use. The card holder agreement includes important information you have to go through thoroughly before signing. The information regards fees charged by the card issuer, how much you will be penalized should you delay payments, as well as the interest rate you have to pay if you choose to withdraw cash with the credit card.

How do credit cards work and what is a credit card payment?

The credit card payments are the sums of money withdrawn periodically from your revolving accounts by the credit card issuer as a financial compensation for their services. The minimum monthly payments are usually 5% of the total credit balance or $10. The payment you make depends on three factors – your total balance, interest rate and the method the credit card issuer uses to calculate your finance charge.

Others fees that you might end up paying are the over-the-limit fees. They are penalties for you being late with your payments. If you make a certain number of consecutive late payments, the issuers will increase your interest rate up to extremely high values (maximum 24%).

What is a credit card number?

The credit card number is not a set of random numbers thrown together on your card. The first number is the most important one, as it identifies the credit card issuer and is known as the Major Industry Identifier or MII. For instance, if the first number of your credit card is 6, then the issuer belongs to the merchandising and banking field.

What is a credit card stripe?

All credit cards feature a magnetic stripe on their backs. This magnetic stripe, also known as magstripe, is made of iron particles, which are, in fact, minute bar magnets. When your credit card is not accepted by an ATM, there is a high possibility that either the magstripe is erased (demagnetized in contact with an EAS tag demagnetizer usually found in stores), or dirty or scratched.

The magstripe is one of the three ways of determining if your credit card can pay a purchase. When making the purchase, you simply swipe the credit card at an electronic data capture (EDC) terminal. The other two ways are voice authentication and online virtual terminals.

What is a credit card grace period?

When you get a credit card, you will be spared of paying interest rates for a certain amount of time known as the grace period. If you manage to pay off your complete debt within this time span, you will pay no interest for your debt. Not all credit cards offer this grace period and its length depends on the type of credit card you were issued.