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Credit card
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 authorising 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 organisations 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 organisations 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.
