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Credit Cards

Credit Cards

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Definition of Credit Card:

Credit card is a payment or monetary transaction card issued by banks to card holder wherein card holder can make purchases, do online transactions etc. with his credit card against his promise made to card issuer to repay the due sum in full along with interest and few other charges.

Credit Card vs Debit Card

Debit card is used against sum of money which is available in your bank balance where is credit card is used against money limit as decided with card issuer (usually a bank) to repay the sum. Hence it's an arbitrary bank account created with a maximum limit of spend. This maximum limit of spend depends upon the repayment capacity of customers assessed by banks.

Technical specifications of Credit Card:

It usually comes in size of 85.60 mm × 53.98 mm (3.370 in × 2.125 in) and also rounded in corners with a radius of 2.88–3.48 mm, which conforms to the ISO/IEC 7810 ID-1 standard. This size is universal and is of the same size as ATM cards and other payment cards, such as debit cards.

Credit cards have printed or embossed account number. This number is divided into 3 parts. First 3 numbers are Banks Identification Numbers, then 6 numbers denote whether it is visa, master or amex (Credit Card manufacturer company) and balance number denote the series followed by the issuer. Combining all three parts produce a unique credit card account number of a customer.

Credit cards also have a magnetic strip or a computer chip enabling security in transactions and record keeping.

Charges and Interest Rate on Credit Card:

Credit card interest is usually waived off if amount is paid in full by due date, else the issuing agency charges full interest.

Grace period on Credit Card:

Grace period is the time during which the Credit card holder has to repay the amount to issuing authority. Before the interest is applied on his amount. It usually varies from 22 days to 55 days depending upon issuing bank and Credit card type.

Parties involved

• Cardholder: The consumer.
• Card-issuing bank: The credit card issuing financial institution or other organization .
• Merchant: the retailers ( individuals/ business) who accept payment through credit cards.
• Bank: the financial institution who accepts payment transaction between cardholder and merchant.

Benefits and Drawbacks of Credit Card:

Benefits of Credit Card:

  • Cash flow flexibility

  • Benefits in terms of rewards and packages

Drawbacks of Credit Card:

  • High risk and bankruptcy

  • Weakens self regulation

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