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Have you heard of something called Credit Card? Of course you must be familiar to it. For those who don’t know, credit card is a plastic card issued by a financial company that empowers the holder to purchase goods and services without actually paying at that moment but promising to pay for it later on. Use of credit card creates a debt which user has to clear and has to pay interest for it also.
This almost 3 x 4 inches piece of plastic also bears identification information of a person like signature, name, picture etc. It also carries logo of the issuing company. It also bears a magnetic strip that can be read by a credit card machine. It is a thing of great benefit and usually people have one or more in their wallet. It should be used properly, else it may prove troublesome. This was something about what a credit card is and how does it look. Now let’s have a look at how this card works?
You might be wondering how does a small card of plastic makes someone provide you with goods and services without paying at that moment. It can be understood by understanding the working of a credit card. Here it is good to mention that credit cards are not helpful everywhere; you can use your card only at places that accept credit cards. This is mentioned either verbally or by displaying logos of the companies whose credit cards are acceptable there.
Once credit card holder has made a purchase and swiped your credit card, the merchant usually gets online confirmation to the effect that he will receive payment from the credit card company who issued the card. Normally within 30 days, the shop keeper is reimbursed the bill amount and credit card user receives a bill from credit card company. Then the credit card user has to remit full amount or pay at least a partial amount, and pay interest on the remaining unpaid balance.
Now coming to the working of the card; a user is issued with a credit card after approval of his account by credit provider. When a purchase is made and instead of paying money, your credit card is swiped it means that you are creating a debt with card issuing company and will pay it later. Card issuing company confirms to pay for the purchase to merchant. Cardholder gives a affirmative response for paying the bill by signing a receipt bearing card details, bill amount and enters a PIN. In remote transactions like e-commerce, telephonic orders, etc CNP (Card Not Present) transaction is used. In this type of transactions, some additional details are asked to be furnished to confirm whether the ordering person possesses the card.
Owner of the credit card gets a monthly bill from card issuing company that lists the purchases made through the card, their cost altogether and the due date by which the amount should be paid to the company. User is enquired to pay complete amount or at least half of the bill by due date, failing which he has to bear late payment penalties. If full payment is not made, then some interest is added on the unpaid amount, which is usually higher than normal bank interests. If user finds some discrepancy in the credit card statement, he/she can question the validity of the entry. There is one more thing, credit card limit, you should know about. It is the limit up to which purchases can be made through the card.
Those who use their credit cards frequently must be mindful of timely payment of the bill as it is a kind of debt. Late payment adds on penalties; moreover, it also harms credit score. So, wise and proper usage of credit card is necessary, else it may be troublesome for you.
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