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Credit card is a kind of smart card, which comes in the category of plastic money. It is used as a system of payment by the user to whom it is issued. It is an instrument that allows the holder to buy goods and services and pay for it later through the issuer. The issuer creates a revolving account and allows the user to borrow money to pay for the goods and services according to the line of credit granted to him. The credit card allows the user to continue a balance debt and the user has to pay interest on it. However it is not like a cash card and cant be used as money. The issuers are usually the credit unions or banks and are issued after the approval of the credit provider. The standard for the credit cards’ size and shape is specified by: ISO/IEC/7810.The goods and service providers often specify and advertise which cards they accept.
On making a purchase the card holder consents to pay the issuer by signing a receipt. The receipt carries the record of the card details and the amount to be paid. Sometimes the user may also enter a PIN (Personal Identification Number). The verification of the card is done by using Point-of-Sale (POS) system or credit card payment terminal that has a link to the service (or goods) provider’s bank. This is an electronic Verification system; it verifies the validity and creditability of the card. The card has a magnetic strip or a chip that has all the data on it.
The card holder receives a statement on the monthly basis that indicates the purchases, the outstanding payments and fees, and the amount owed. The cardholder has to pay at least a minimum proportion of this bill by the due date. If the card holder is not satisfied, he or she may also dispute the charges that appear incorrect. The issuer charges a predefined interest on the balance amount and a late fee or other penalties may be imposed by the user in case of failure to pay the minimum payment proportion. Some financial institutions arrange automatic deduction of payments from the card holder’s bank account.
The credit card allows a short term small loan to be made quickly to the card holder. It is quiet convenient to the customer, provided the total amount doesn’t exceed the maximum credit limit. They also may offer benefits and rewards sometimes. These may include enhanced warranty on the product, free damage coverage on new purchases etc. It also solves many purposes of cash.
The credit card also lets the card holder to track their expenses easily. These are accepted world wide and offer many perks like reward schemes which are available with large credit limits.
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