| A credit card is a system of payment, | | | | forms of debt). Some financial |
| named after the small plastic card | | | | institutions can arrange for automatic |
| issued to users of the system. A credit | | | | payments to be deducted from the user's |
| card is different from a debit card in | | | | accounts. |
| that it does not remove money from the | | | | Credit card issuers usually waive |
| user's account after every transaction. | | | | interest charges if the balance is paid |
| In the case of credit cards, the issuer | | | | in full each month, but typically will |
| lends money to the consumer (or the | | | | charge full interest on the entire |
| user). It is also different from a | | | | outstanding balance from the date of |
| charge card (though this name is | | | | each purchase if the total balance is |
| sometimes used by the public to describe | | | | not paid. |
| credit cards), which requires the | | | | For example, if a user had a $1,000 |
| balance to be paid in full each month. | | | | outstanding balance and pays it in full, |
| In contrast, a credit card allows the | | | | there would be no interest charged. If, |
| consumer to 'revolve' their balance, at | | | | however, even $1.00 of the total balance |
| the cost of having interest charged. | | | | remained unpaid, interest would be |
| Most credit cards are the same shape and | | | | charged on the full $1,000 from the date |
| size, as specified by the ISO 7810 | | | | of purchase until the payment is |
| standard. | | | | received. The precise manner in which |
| A user is issued a credit card after an | | | | interest is charged is usually detailed |
| account has been approved by the credit | | | | in a cardholder agreement which may be |
| provider (often a general bank, but | | | | summarized on the back of the monthly |
| sometimes a captive bank created to | | | | statement. |
| issue a particular brand of credit card, | | | | The credit card may simply serve as a |
| such as Wells Fargo or American Express | | | | form of revolving credit, or it may |
| Centurion Bank), with which the user | | | | become a complicated financial |
| will be able to make purchases from | | | | instrument with multiple balance |
| merchants accepting that credit card up | | | | segments each at a different interest |
| to a pre-established credit limit. | | | | rate, possibly with a single umbrella |
| When a purchase is made, the credit card | | | | credit limit, or with separate credit |
| user agrees to pay the card issuer. The | | | | limits applicable to the various balance |
| cardholder indicates their consent to | | | | segments. Usually this |
| pay, by signing a receipt with a record | | | | compartmentalization is the result of |
| of the card details and indicating the | | | | special incentive offers from the |
| amount to be paid or by entering a PIN. | | | | issuing bank, either to encourage |
| Also, many merchants now accept verbal | | | | balance transfers from cards of other |
| authorizations via telephone and | | | | issuers, or to encourage more spending |
| electronic authorization using the | | | | on the part of the customer. In the |
| Internet, known as a customer not | | | | event that several interest rates apply |
| present (CNP) transaction. | | | | to various balance segments, payment |
| Electronic verification systems allow | | | | allocation is generally at the |
| merchants to verify that the card is | | | | discretion of the issuing bank, and |
| valid and the credit card customer has | | | | payments will therefore usually be |
| sufficient credit to cover the purchase | | | | allocated towards the lowest rate |
| in a few seconds, allowing the | | | | balances until paid in full before any |
| verification to happen at time of | | | | money is paid towards higher rate |
| purchase. The verification is performed | | | | balances. Interest rates can vary |
| using a credit card payment terminal or | | | | considerably from card to card, and the |
| Point of Sale (POS) system with a | | | | interest rate on a particular card may |
| communications link to the merchant's | | | | jump dramatically if the card user is |
| acquiring bank. Data from the card is | | | | late with a payment on that card or any |
| obtained using from a magnetic stripe or | | | | other credit instrument, or even if the |
| chip on the card; the later system is | | | | issueing bank decides to raise its |
| commonly known as Chip and PIN, but is | | | | revenue. As the rates and terms vary, |
| more technically an EMV card. | | | | services have been set up allowing users |
| Other variations of verification systems | | | | to calculate savings available by |
| are used by eCommerce merchants to | | | | switching cards, which can be |
| determine if the user's account is valid | | | | considerable if there is a large |
| and able to accept the charge. These | | | | outstanding balance (see external links |
| will typically involve the cardholder | | | | for some on-line services). |
| providing additional information, such | | | | Because of intense competition in the |
| as the security code printed on the back | | | | credit card industry, credit providers |
| of the card, or the address of the | | | | often offer incentives such as frequent |
| cardholder. | | | | flier points, gift certificates, or cash |
| Each month, the credit card user is sent | | | | back (typically up to 1 percent based on |
| a statement indicating the purchases | | | | total purchases) to try to attract |
| undertaken with the card, any | | | | customers to their program. |
| outstanding fees, and the total amount | | | | Low interest credit cards or even 0% |
| owed. After receiving the statement, the | | | | interest credit cards are available. The |
| cardholder may dispute any charges that | | | | only downside to consumers is that the |
| he or she thinks are incorrect (see Fair | | | | period of low interest credit cards is |
| Credit Billing Act for details of the US | | | | limited to a fixed term, usually between |
| regulations). Otherwise, the cardholder | | | | 6 and 12 months after which a higher |
| must pay a defined minimum proportion of | | | | rate is charged. However, services are |
| the bill by a due date, or may choose to | | | | available which alert credit card |
| pay a higher amount up to the entire | | | | holders when their low interest period |
| amount owed. The credit provider charges | | | | is due to expire. Most such services |
| interest on the amount owed (typically | | | | charge a monthly or annual fee. |
| at a much higher rate than most other | | | | |