- A typical credit card is small enough to fit into a standard. It usually has the credit card number, account expiration date and the card holder's full name embossed on the front. The card front may also have the name of the card issuer, such as a bank or credit card company. It may also have the card brand, such as Visa, MasterCard, American Express or Discover, or the name of the store franchise if it's a store card.
The back of the card has a thin white strip for the card holder's signature. The credit card security code is usually on this strip, as well. Because only the physical holder of the card can see this code, it's especially useful for verifying online transactions are made by the legitimate card holder. Almost all credit cards show this number as a three-digit number on the signature strip. The only exception is American Express. Its cards show the security code as a four-digit number on the front of the card, above the credit card number. Above or below the signature strip is the contact information for the card issuer, such as the customer service number.
The back of the card is also where the magnetic strip is. This strip is what you swipe into credit card payment machines and ATM kiosks to make transactions. The strip has your account information recorded on it, which the machines reads whenever you swipe your card. - While most credit card transactions finish in a few minutes, they actually require many steps to complete. First, the card holder swipes the card (or, if online, enters the credit card number) to request a purchase from a merchant. The merchant sends this request to a third-party payment processing company, which requests an authorization for the transaction amount from your credit card company. If you have enough available credit, the credit card company sets aside the funds in your account, or puts them on hold. Next, the credit card company sends a message back to the payment processing company called an authorization, which it then relays to the merchant. The merchant completes your purchase for you, but the transaction hasn't finished yet.
At the end of each day, the merchant sends details of his credit card transactions that day to the payment processing company in one big batch. Once the processing company receives each batch, it goes through all the transactions to clear each purchase and fund the merchant's bank account with the money, minus any fees the company may charge for processing the transactions. Once the funds have cleared into the merchant's bank account, your credit card company lifts the holds on your funds and deducts the purchase from your credit line. - Each credit card has a credit limit, or a limit to how much you can spend with the card at any given time. The amount of your credit limit depends on many factors such as your credit history and income level. If you have a secured credit card, and you have paid a deposit to the credit card company as collateral for the credit line, then your credit limit would usually equal to part or all of the amount of your deposit. An unsecured credit card has no deposit and its limit is up to the card issuer. Once you spend to your credit limit with the card, you can't spend any more until you make payments on your account.
- Essentially, a credit line from a credit card company is a loan, from which you can borrow over and over as long as you make the minimum monthly payments. The credit card issuer gives you a grace period of three to five weeks to start repaying the amount you've borrowed on the credit card, plus a percentage of either your daily or your monthly balance that the card issuer adds on to your balance. This is called a finance charge, and its rate is determined by a percentage rate the card issuer establishes annually. The percentage amount of your finance charge is called your APR, or annual percentage rate. How high or low your APR is depends heavily on your credit history. The better your credit history, the lower your APR is likely to be (Ref 1).
Card issuers may add other fees to your account. Many credit cards have an annual membership fee, charged yearly to your account or spread out over the course of 12 months. If you are ever late with a payment, the card issuer may also charge you late fees. Some credit card issuers allow purchases to exceed your credit limit slightly, but they may charge you additional fees for doing so. - Unlike ordinary credit card transactions, cash advances are short-term loans against your credit limit in the form of cash. You can usually take out a cash advance for whatever cash advance limit you have on your card. Some credit cards allow you to take out cash advances at regular ATMs, but for many others, you must take out cash advances at a teller in a physical bank, or request it directly from the card issuer. Cash advances can be expensive because many banks and card issuers have a separate and usually higher APR for them than they do for regular credit card transactions. Also, many companies start adding fees and charges immediately or with a much shorter grace period than for regular transactions.
- After the grace period has expired on your purchases, you must begin to make payments on your credit card balance. You can pay it off in increments by paying the monthly minimum, which includes a portion of your balance plus any finance charges and fees that the card issuer has charged to your account that month. You can also pay off your balance in full. This way, your account won't accrue any additional fees or finance charges.
- Advertisement -
- Advertisement -