Credit card is a small plastic card with a magnetic strip which enables the holder to purchase any goods and services up to a predetermined amount, called a credit limit. Normally the issuers of credit card will be banks, financial institutions or other credit unions.
Credit card will be issued only after the account of the card holder has been approved by the issuer. After that the card holder can avail any goods and services from those vendors who accept the card.
Initially the vendor who provides any goods or services to the card holder receives credit card information from the holder. The bank which issues credit card pays the money to the vendor and later the card holder has to repay the banker with in the due dates. You can either choose the option of making full payment or regular monthly payments.
If the card holder fails to repay the amount in the due date, then the issuer has the legal right to charge a specific percentage of interest on the unpaid amount. Each banking institutions have their own set of policies for credit card applications.
After the purchase has been made the card holder acknowledges his liability to pay the amount by signing a receipt which carries the card information and the details of purchase.
The merchants also use electronic verification systems to verify whether the card is valid and the card holder has enough money in his account to cover all the credit purchase. All these happen with in few seconds. The verification is carried out either using a Point of Sale or credit card payment terminal system in which a communications link is connected to the acquiring bank of the vendor.
Credit cards are basically classified in to secured and unsecured. The customers can either choose a secured or unsecured credit card based on their repaying capacity. For a secured credit card, the customer has to pay a deposit amount and is allowed to make credit purchases up to the deposited amount. If the card holder fails to make payment, the issuer can make use of the deposited money to meet the debts.
On the other hand, unsecured debts will be issued to those customers who have made prompt payments and have a good credit history. Credit limit will be determined by the banker and it may be raised or lowered based on the customer’s performance. The rate of interest charged for unsecured credit card will be more than the personal loan rate.
The major benefit of holding a credit card is that you don’t have to carry cash all the time. The credit card can provide you all kind of services which money can. Most of the credit cards now carry insurance to cover theft. However credit card will be beneficial only if is used in right way. Most of the card holders face problem if their debt level exceeds the level of monthly payment.
