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