Some say that credit cards are the most accessible objects in our current world. It is probably easier to get hold of a credit card than a job. A popular term for credit card is plastic money. Credit card is made of plastic and in all respects as powerful as hard cash. This article will be a guide to credit cards in general.
A credit card is a plastic card(size and shape specified by ISO 7810) that is given to an individual which acts like money in all respects but is more secure in the sense that only the person whose name is imprinted on the credit card could use it. The concept is to get credit first and there would be a credit period in which the credit needs to repaid. Some credit cards carry an interest along with it and most don’t. Each credit card comes with a 16 digit card number (for visa or mastercard and 15 digit for Amex). For a Visa or a mastercard(16 digits), the first 6 digits is the bank identification number. The next 9 numbers is the account number given to an individual. The last number is the validity check code. Every card has an upper limit called as credit limit which will be the maximum credit the card offers.
How to get a credit card?
Credit card companies have different criteria against which the credit cards are issued to individuals. US credit card companies issue credit cards based on the points accumulated on the social security number. Indian companies issue a credit card based on the individual’s job. But one aspect is common to all credit card companies. They would issue a credit card if they are assured that the individual has means of paying the credit back.
How does a credit card work?
All credit cards are connected to a centralized network which has a database of all the credit card numbers and the name and credit limit associated with it. When a credit card is used on a transaction, it checks with the central server to authenticate if the credit card is valid or not. Based on the credentials, the transaction is approved or denied.
Payment of credit cards
The credit card issuer usually gives somewhere between 20 to 50 days to make the payment on the credit card. The issuer doesn’t expect user to make the whole payment each month but only a minimum payment which would be around 10% of the total credit. The rest of the unpaid credit would carry an interest associated with it which keeps accruing until it is paid off. Honestly, all credit card companies would love if all users just paid a minimum and pay interest on the remaining sum. This is the only way they can make money on issuing a credit card.
The vendor needs to make a percentage on the credit issued to the credit card company. The only advantage the vendor has by accepting credit cards is that he can open the business to all kinds of people who rely on credit cards for their purchases.
This is just an introduction to credit cards. There is much more to credit cards than just getting hold of a plastic card. It will be discussed in my next article.
