How Credit Cards Work – Learn Step by Step
Credit Card and its work:
A credit card is a small plastic card that you can use for borrowing money for different uses and purchases with a promise of paying back. In this type of borrowing, the lender creates an account by deposing a fixed amount of money in it from which the borrower uses for his expenses. A rate of interest is charged on it, and borrower has to pay a fix amount with interest each month. These cards can be issued by banks and credit unions.
These cards are now acceptable by everywhere. Merchants are having a small electronic machine through which they can check the validity of a credit card in seconds. The user can make different purchases through credit card and even can make purchases online. In such situation, where the card cannot be shown physically, therefore, online merchants ask different questions about the cars such as security code, expiry date, and billing address. Every month a record of purchases is sent to a user with details like total amount borrowed, and the outstanding fees if any. The user can argue for any mistakes in charges.
Benefits of Credit Card to customer:
There are many credit cards’ benefits to customers such as.
- Credit cards made the purchase of goods and services easy without the carryings large amount of cash in your pockets.
- It provides you protection from street robberies that are usually made for cash, if the robber steals your credit card, you can simply block it by informing the lender.
- There are some companies that are providing you insurance policies on the purchase of big and expensive items, in case you lost or damage your large purchase the evidence is available in the form of company record and your credit card statement.
- Credit cards are found beneficial in times of unexpected situations like accidents or emergencies when you are not having enough money in your pocket, or you may not want to spend from your budget.
- There are some credit cards, which offer you some discounts from certain companies or stores, as well as also give you some discounts on travels and may offer you certain kinds of insurance like life insurance, etc.
- Credit cards allow you to place certain big orders, which are impossible with cash.
- Credit cards made you accessible to online stores as about 90% purchases on the web are made via credit cards.
- Credit cards are very light weighted and therefore, are much convenient in the comparison of cash.
Benefits of credit card to merchants:
Credit card is also very beneficial from merchant’s point of view. Following are the benefits to merchants.
- Payment via credit cards ensuring a timely and secured payment that can be easily transferred in your account with no effort.
- Accepting credit cards made you able to generate more revenue. Most of the customers are having credit cards nowadays, and merchant’s acceptance made them to buy more things from you as it makes your products in their reach more readily.
- It is a very faster and safer way that results in the reduction of cash flow in the market and at the same time lowering the risks of robberies.
- It made you tension free from the collection of money, because payments are directly transferred into your bank account.
- According to a survey, customers using credit cards spending 20% more than those with cash. Acceptance of credit card gives you an opportunity to increase your sales.
- Credit cards help in modifying your business image and made you updated and are also a competitive advantage over your competitors.
Secured Credit Cards:
Secured credits cards are like ordinary credit cards in terms of usage, fees and cost the difference is that in secured credit card the customer deposit a sum of money for saving purpose, for example, $600. If the customer become failing in the repayment of the money, the lender will take the deposit amount of the customer. It is secured in the sense that the issuer or lender is having a security in the form of deposit, and he can cover any of the unpaid bills. These kinds of credit cards are good for those who want to enhance their credit score. Because of good credit records, there are many companies which are offering rewards to customer. These cards are usually provided to bad credit customers.
Prepaid Credit Cards:
Prepaid credit cards are not traditional types of credit cards. It is a type of credit card that is offered to those who are having certain approval problems to that of conventional credit cards. Prepaid credit card is having its own features and characteristics. In this card customer needs to upload funds before any transaction. In case of conventional credit cards, the customer makes purchases on credit and becomes liable to repay the money. However, in prepaid credit cards customer buys a card from a company and then load money to it. These cards are good in sense the stop you from making extra purchases. Usually customers are adopting them for convenience.
Fees charged to customers:
There are different types of fees charged to customers on the use of credit cards. It may be possible that the customer is fully aware of them, and it is also possible that they even don’t know about anything.
- Business owners charging some extra amount on purchases that are made by credit cards. However, according to processing rules, it is illegal.
- Sometimes different companies offer you a reward on purchases made via credit cards. However, these rewards are not fully free and the company charges you a minimum amount as a reward recovery fees.
- Activity fees are charged by an issuer, if the cardholders not make use of credit card. Activity fee is charging on those cards which remain unused for over a year.
- If the customer fails to pay the monthly repayment on the time, in this situation, the lender will charge him a late-payment fee.
- If your purchases increase from the agreed limit, the lender will charge you over a limit fees at the end of the statement period.