What is a Credit Card? Explained

What is a credit card? 

Simply put, a credit card is just a small piece of plastic that fits easily in your wallet. Well, it's not 'just a piece of plastic'; it is a compelling piece of plastic that can be considered a compressed form of money. 

We can define credit cards as a credit system that allows the consumer to borrow money from a bank or financial institution and use it to make payments to merchants. 

To get a credit card, 

The consumer has to fill out an application form, which is actually like an agreement between the credit card supplier and the credit card consumer. The credit card provider 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 stripe (which is usually located on the back of the credit card). This information is used to authorize payments each time the customer uses the credit card. 

The customer can use the credit card to make purchases at commercial points or on the Internet, etc. Of course, this depends on the merchant's ability to accept credit card payments.

However, accepting credit cards is not enough. The merchant must be able to accept payments made via credit card provided by that credit card organization (from which you have the credit card) i.e., VISA, MasterCard, etc. 

You can also use your credit card to withdraw cash from ATMs (automatic teller machines) – also known as cash machines or day/night machines.

There are eight major credit card organizations and most of them operate in many countries around the world. These are American Express,, Diners Club, Discover, JCB, MasterCard and VISA. Mastercard and VISA are probably the most popular. 

Then there are credit card providers or issuers that have ties to these organizations and issue credit cards on their behalf, e.g., They have various banks that issue VISA cards (e.g., HSBC VISA card) To make a credit card payment.

The credit card must either be swiped into a special credit card processing machine (when shopping in person in stores) or the details of the credit card must be entered on the retailer's website (when purchasing online). . 

The credit card issuer sends the bill for these transactions to the consumer, who then has to pay either the full amount or a partial amount (minimum amount). If you pay in full, the credit card issuer will not charge interest on the amount owed; otherwise the pre-agreed rate will be charged. 

If you don't even pay the minimum, you can

also expect a late fee. In addition, the credit card issuer usually caps the maximum amount you can spend on your credit card per month.

How is a credit card useful?

Using a credit card is convenient in numerous instances. The consumer can easily make purchases without any complications, as he/she does not have to give any prior notice of his/her spending behavior, and he/she can easily correct any errors with the option to make a chargeback.

Interest rates are usually lower for credit cards than for debit cards, as the interest rate is determined as a percentage of the outstanding amount, and the cost of making a purchase is deducted before the interest is calculated. 

Credit cards also charge a separate fee for every transaction, so the fees involved are negated, making it a particularly convenient option for consumers.

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