| A credit card system is a type of retail transaction | | | | charged is usually detailed in a cardholder agreement |
| settlement and credit system, named after the small | | | | which may be summarized on the back of the monthly |
| plastic card issued to users of the system. A credit | | | | statement. (See The TD Gold Travel Visa Cardholder |
| card is different from a debit card in that it does not | | | | Agreement Retrieved January 3, 2006) |
| remove money from the users' account after every | | | | The credit card may simply serve as a form of |
| transaction. In the case of credit cards, the issuer lends | | | | revolving credit, or it may become a complicated |
| money to the consumer (or the user). It is also different | | | | financial instrument with multiple balance segments |
| from a charge card (though this name is sometimes | | | | each at a different interest rate, possibly with a single |
| used by the public to describe credit cards), which | | | | umbrella credit limit, or possibly with separate credit |
| requires the balance to be paid in full each month. In | | | | limits applicable to the various balance segments. |
| contrast, a credit card allows the consumer to 'revolve' | | | | Usually this compartmentalization is the result of special |
| their balance, at the cost of having interest charged. | | | | incentive offers from the issuing bank, either to incent |
| Most credit cards are the same shape and size, as | | | | balance transfers from cards of other issuers, or to |
| specified by the ISO 7810 standard. | | | | incent more spending on the part of the customer. In |
| A user is issued a credit card after an account has | | | | the event that several interest rates apply to various |
| been approved by the credit provider (often a general | | | | balance segments, payment allocation is generally at |
| bank, but sometimes a captive bank created to issue | | | | the discretion of the issuing bank, and payments will |
| a particular brand of credit card, such as Wells Fargo | | | | therefore usually be allocated towards the lowest rate |
| or American Express Centurion Bank), with which the | | | | balances until paid in full before any money is paid |
| user will be able to make purchases from merchants | | | | towards higher rate balances. Interest rates can vary |
| accepting that credit card up to a pre-established | | | | considerably from card to card, and the interest rate |
| credit limit. | | | | on a particular card may jump dramatically if the card |
| When a purchase is made, the credit card user | | | | user is late with a payment on that card or any other |
| agrees to pay the card issuer. Originally the user would | | | | credit instrument. As the rates and terms vary, |
| indicate their consent to pay, by signing a receipt with a | | | | services have been set up allowing users to calculate |
| record of the card details and indicating the amount to | | | | savings available by switching cards, which can be |
| be paid, but many merchants now accept verbal | | | | considerable if there is a large outstanding balance |
| authorizations via telephone and electronic | | | | Because of intense competition in the credit card |
| authorization using the Internet. | | | | industry, credit providers often offer incentives such as |
| Electronic verification systems allow merchants (using | | | | frequent flier points, gift certificates, or cash back |
| a strip of magnetized material on the card holding | | | | (typically 1 percent) to try to attract customers to their |
| information in a similar manner to magnetic tape or a | | | | program. |
| floppy disk) to verify that the card is valid and the | | | | Low interest credit cards or even 0% interest credit |
| credit card customer has sufficient credit to cover the | | | | cards are available. The only downside to consumers |
| purchase in a few seconds, allowing the verification to | | | | is that the period of low interest credit cards is limited |
| happen at time of purchase. Other variations of | | | | to a fixed term, usually between 6 and 12 months after |
| verification systems are used by eCommerce | | | | which a higher rate is charged. However, services are |
| merchants to determine if the user's account is valid | | | | available which alert credit card holders when their low |
| and able to accept the charge. | | | | interest period is due to expire. Most such services |
| Each month, the credit card user is sent a statement | | | | charge a monthly or annual fee. |
| indicating the purchases undertaken with the card, and | | | | To compare credit cards |
| the total amount owed. After receiving the statement, | | | | Grace period |
| the cardholder may dispute any charges that he or | | | | A credit card's grace period is the time the customer |
| she thinks are incorrect (see Fair Credit Billing Act for | | | | has to pay the balance, before interest is charged to |
| details of the US regulations). Otherwise, the | | | | the balance. Grace periods vary, but usually range |
| cardholder must pay a defined minimum proportion of | | | | from 10 - 25 days depending on the type of credit |
| the bill by a due date, or may choose to pay a higher | | | | card and the issuing bank. |
| amount up to the entire amount owed. The credit | | | | The merchant's side |
| provider charges interest on the amount owed | | | | Even some street market stands now take credit |
| (typically at a much higher rate than most other forms | | | | cards.For merchants, a credit card transaction is often |
| of debt). Some financial institutions can arrange for | | | | more secure than other forms of payment, such as |
| automatic payments to be deducted from the user's | | | | cheques, because the issuing bank commits to pay the |
| accounts. | | | | merchant the moment the transaction is verified. The |
| Credit card issuers usually waive interest charges if | | | | bank charges a commission (discount fee), to the |
| the balance is paid in full each month, but typically will | | | | merchant for this service and there may be a certain |
| charge full interest on the entire outstanding balance | | | | delay before the agreed payment is received by the |
| from the date of each purchase if the total balance is | | | | merchant. In addition, a merchant may be penalized or |
| not paid. | | | | have their ability to receive payment using that credit |
| For example, if a user had a $1,000 outstanding | | | | card restricted if there are too many cancellations or |
| balance and pays it in full, there would be no interest | | | | reversals of charges. |
| charged. If, however, even $1.00 of the total balance | | | | In some countries, like the Nordic countries, banks |
| remained unpaid, interest would be charged on the full | | | | guarantee payment on stolen cards only if ID card is |
| $1,000 from the date of purchase until the payment is | | | | checked. In these countries merchants therefore |
| received. The precise manner in which interest is | | | | usually ask for ID. |