Credit Card Review Blog

The Inside Scoop Of How Credit Cards Work

The Inside Scoop…How Credit Cards Work

You really can’t get by without having at least one major credit card these days.  Credit cards are used to make purchases online, to reserve a hotel room, to get a rental car, to buy an airplane ticket, etc.  It is so important to understand how credit cards work to make sure that you are using your credit card properly.

First of all, you need to research credit cards.  There are millions of different options to choose from.  You can get a low-interest card, a high-interest card, a card that doesn’t require an annual fee, a reward credit card, a cash-back credit card…the list goes on and on and on.  After you’ve chosen a card that will suit your needs and benefit you the most, apply for it.  Most credit cards can be applied for online.  Some cards even have a simple, 60-second approval feature.

Once you have been approved, you’ll receive your credit card in the mail.  It doesn’t usually take that long to get it, considering that credit cards companies “rush” it to your door so you can start making purchases.  When you have your new credit card in your hot, little hand, you can begin using it to buy things.  You can buy an endless array of things at different merchants around the world.  Some merchants only accept certain credit cards.  So, make sure your retailer accepts the one you’d like to use.

When you buy something, you agree to pay your credit card issuer.  This means that if you use your Visa cash-back credit card to buy a shirt, you promise to pay Visa back.  If you don’t pay it back on time, Visa will charge you an interest fee.  You promise to pay your credit card issuer every time you sign a receipt or by entering your Personal Identification Number or PIN.  I bet you didn’t realize that every time you use your PIN, you are not only accessing your account, you are promising to pay the amount.  Some merchants now accept a verbal authorization over the phone or electronic authorization over the Internet.  The electric authorization is called a CNP or Card/Cardholder Not Present transaction.

Here are the components to your individual credit card.

1. Issuing bank logo
2. EMV chip
3. Hologram
4. Credit card number
5. Card brand logo
6. Expiration Date
7. Cardholder’s name

8. Magnetic stripe
9. Signature strip
10. Card Security Code

Electronic verification systems allow your retailer to verify that the credit card is valid and there there is enough space on the card to make the purchase.  It only takes a few seconds for this process to occur.  The process is used using a merchant terminal or POS (Point of Sale).  Information from your card is obtained from the magnetic stripe on the back of your card.  If you make a purchase online or via the telephone, you will probably be asked to give the card security code.  This code serves the same purpose as the magnetic stripe.

You will receive an itemized statement of your purchases every month.  You can also check this statement for any outstanding fees and the balance on your card.  After receiving this statement, you can make either the minimum payment or pay the balance in full by the due date.  The credit card company will charge you an interest fee for any amount that is not paid in full by the due date.