Title : This is Credit Card Definition
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This is Credit Card Definition
This is Credit Card Definition - A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services, based on the cardholder's promise to the card issuer to pay them for the amounts so paid plus other agreed charges.[1] The card issuer (usually a bank) creates a revolving account and grants a line of credit to the cardholder, from which the cardholder can borrow money for payment to a merchant or as a cash advance.A credit card is different from a charge card, where it requires the balance to be repaid in full each month.[2] In contrast, credit cards allow the consumers a continuing balance of debt, subject to interest being charged. A credit card also differs from a cash card, which can be used like currency by the owner of the card. A credit card differs from a charge card also in that a credit card typically involves a third-party entity that pays the seller and is reimbursed by the buyer, whereas a charge card simply defers payment by the buyer until a later date.
2.3 Early charge cards
2.6 Vintage, old, and unique credit cards as collectibles
3.2 Interest charges
3.6 Credit card register
5.1 Business credit cards
5.2 Secured credit cards
5.3 Prepaid cards
5.4 Digital cards
6.4 Benefits to merchants
6.5 Costs to merchants
8.3 Charge offs
9.3 Fees charged to customers
10 Over limit charges
13 Credit cards in ATMs
14 Credit cards as funding for entrepreneurs
The size of most credit cards is 85.60 mm × 53.98 mm (3.370 in × 2.125 in) and rounded corners with a radius of 2.88–3.48 mm,[3] conforming to the ISO/IEC 7810 ID-1 standard, the same size as ATM cards and other payment cards, such as debit cards.
Credit cards have a printed[4] or embossed bank card number complying with the ISO/IEC 7812 numbering standard. Credit cards have a magnetic stripe conforming to the ISO/IEC 7813. Many modern credit cards have a computer chip embedded in them as a security feature.
In addition to the main credit card number, credit cards also carry issue and expiration dates (given to the nearest month), as well as extra codes such as issue numbers and security codes. Early charge cards[edit]
Western Union began issuing charge cards to its frequent customers in 1921.[citation needed] In 1938, several companies started to accept each other's cards. Air Travel Card[edit]
Early general purpose charge cards: Diners Club, Carte Blanche, and American Express[edit]
After 1970, only credit card applications could be sent unsolicited in mass mailings.
Before the computerization of credit card systems in America, using a credit card to pay at a merchant was significantly more complicated than it is today. Each time a consumer wanted to use a credit card, the merchant would have to call their bank, who in turn had to call the credit card company, which then had to have an employee manually look up the customer's name and credit balance. There are now countless variations on the basic concept of revolving credit for individuals (as issued by banks and honored by a network of financial institutions), including organization-branded credit cards, corporate-user credit cards, store cards and so on.
In 1966, Barclaycard in the United Kingdom launched the first credit card outside the United States.
Debit cards and online banking (using either ATMs or PCs[clarification needed]) are used more widely than credit cards in some countries. Japan remains a very cash-oriented society, with credit card adoption being limited mainly to the largest of merchants; although stored value cards (such as telephone cards) are used as alternative currencies, the trend is toward RFID-based systems inside cards, cellphones, and other objects.
Vintage, old, and unique credit cards as collectibles[edit]
A growing field of numismatics (study of money), or more specifically exonumia (study of money-like objects), credit card collectors seek to collect various embodiments of credit from the now familiar plastic cards to older paper merchant cards, and even metal tokens that were accepted as merchant credit cards. A credit card issuing company, such as a bank or credit union, enters into agreements with merchants for them to accept their credit cards. The credit card issuer issues a credit card to a customer at the time or after an account has been approved by the credit provider, which need not be the same entity as the card issuer. The cardholders can then use it to make purchases at merchants accepting that card. When a purchase is made, the cardholder agrees to pay the card issuer. Credit card advertising regulations in the US include the Schumer box disclosure requirements. A large fraction of junk mail consists of credit card offers created from lists provided by the major credit reporting agencies. Interest charges[edit]
Interest rates can vary considerably from card to card, and the interest rate on a particular card may jump dramatically if the card user is late with a payment on that card or any other credit instrument, or even if the issuing bank decides to raise its revenue.
A credit card's grace period is the time the cardholder has to pay the balance before interest is assessed on the outstanding balance. Card-issuing bank: The financial institution or other organization that issued the credit card to the cardholder. Cards issued by banks to cardholders in a different country are known as offshore credit cards.
Merchant: The individual or business accepting credit card payments for products or services sold to the cardholder.
Credit Card association: An association of card-issuing banks such as Discover, Visa, MasterCard, American Express, etc. that set transaction terms for merchants, card-issuing banks, and acquiring banks.
Transaction steps[edit]
Authorization: The cardholder presents the card as payment to the merchant and the merchant submits the transaction to the acquirer (acquiring bank). The acquirer verifies the credit card number, the transaction type and the amount with the issuer (card-issuing bank) and reserves that amount of the cardholder's credit limit for the merchant. Clearing and Settlement: The acquirer sends the batch transactions through the credit card association, which debits the issuers for payment and credits the acquirer. Credit card register[edit]
The register is a personal record of banking transactions used for credit card purchases as they affect funds in the bank account or the available credit. In addition to check number and so forth the code column indicates the credit card. When the credit card payment is made the balance already reflects the funds were spent. In a credit card's entry, the deposit column shows the available credit and the payment column shows total owed, their sum being equal to the credit limit.
Each check written, debit card transaction, cash withdrawal, and credit card charge is entered manually into the paper register daily or several times per week.[15] Credit card register also refers to one transaction record for each credit card. In this case the booklets readily enable the location of a card’s current available credit when ten or more cards are in use.[citation needed]
Credit cards are accepted in larger establishments in almost all countries, and are available with a variety of credit limits, repayment arrangements. Business credit cards[edit]
See also: Stored-value card
Business credit cards are specialized credit cards issued in the name of a registered business, and typically they can only be used for business purposes. Business credit cards offer a number of features specific to businesses. Business credit cards are offered by almost all major card issuers—like American Express, Visa, and MasterCard in addition to local banks and credit unions. Charge cards for businesses, however, are currently only offered by American Express.[18]
Secured credit cards[edit]
A secured credit card is a type of credit card secured by a deposit account owned by the cardholder. In some cases, credit card issuers will offer incentives even on their secured card portfolios. The cardholder of a secured credit card is still expected to make regular payments, as with a regular credit card, but should they default on a payment, the card issuer has the option of recovering the cost of the purchases paid to the merchants out of the deposit. Secured credit cards are an option to allow a person with a poor credit history or no credit history to have a credit card which might not otherwise be available. Fees and service charges for secured credit cards often exceed those charged for ordinary non-secured credit cards. For people in certain situations, (for example, after charging off on other credit cards, or people with a long history of delinquency on various forms of debt), secured cards are almost always more expensive than unsecured credit cards.
Sometimes a credit card will be secured by the equity in the borrower's home.
Prepaid cards[edit]
See also: Stored-value card
A "prepaid credit card" is not a true credit card,[19] since no credit is offered by the card issuer: the cardholder spends money which has been "stored" via a prior deposit by the cardholder or someone else, such as a parent or employer. However, it carries a credit-card brand (such as Discover, Visa, MasterCard, American Express, or JCB) and can be used in similar ways just as though it were a credit card.[19] Unlike debit cards, prepaid credit cards generally do not require a PIN. An exception are prepaid credit cards with an EMV chip. After purchasing the card, the cardholder loads the account with any amount of money, up to the predetermined card limit and then uses the card to make purchases the same way as a typical credit card. Prepaid cards can be issued to minors (above 13) since there is no credit line involved. With prepaid credit cards purchasers are not charged any interest but are often charged a purchasing fee plus monthly fees after an arbitrary time period. Many other fees also usually apply to a prepaid card.[19]
Prepaid cards can be used globally. Digital cards[edit]
A digital card is a digital cloud-hosted virtual representation of any kind of identification card or payment card, such as a credit card.[citation needed]
Compared to debit cards and checks, a credit card allows small short-term loans to be quickly made to a cardholder who need not calculate a balance remaining before every transaction, provided the total charges do not exceed the maximum credit line for the card.
Currently, there are credit cards with 0% intro APR on Balance Transfers and no late fees.[25]
Comparison of credit card benefits in the US[edit]
The table below contains a list of benefits offered in the United States for consumer credit cards. Benefits may vary in other countries or business credit cards.
Low introductory credit card rates are limited to a fixed term, usually between 6 and 12 months, after which a higher rate is charged. As all credit cards charge fees and interest, some customers become so indebted to their credit card provider that they are driven to bankruptcy. First Premier Bank at one point offered a credit card with a 79.9% interest rate;[38] however, they discontinued this card in February 2011 because of persistent defaults.[39]
Merchants that accept credit cards must pay interchange fees and discount fees on all credit-card transactions.[44][45] In some cases merchants are barred by their credit agreements from passing these fees directly to credit card customers, or from setting a minimum transaction amount (no longer prohibited in the United States, United Kingdom or Australia).[46] The result is that merchants are induced to charge all customers (including those who do not use credit cards) higher prices to cover the fees on credit card transactions.[45] The inducement can be strong because the merchant's fee is a percentage of the sale price, which has a disproportionate effect on the profitability of businesses that have predominantly credit card transactions, unless compensated for by raising prices generally. Benefits to merchants[edit]
An example of street markets accepting credit cards. Finally, credit cards reduce the back office expense of processing checks/cash and transporting them to the bank.
Prior to credit cards, each merchant had to evaluate each customer's credit history before extending credit. Costs to merchants[edit]
Merchants are charged several fees for accepting credit cards. Merchants with very low average transaction prices or very high average transaction prices are more averse to accepting credit cards. In some cases merchants may charge users a "credit card supplement" (or surcharge), either a fixed amount or a percentage, for payment by credit card.[48] This practice was prohibited by most credit card contracts in the United States until 2013, when a major settlement between merchants and credit card companies allowed merchants to levy surcharges. Because credit card fee structures are very complicated, smaller merchants are at a disadvantage to analyze and predict fees.
Security[edit]
Main article: Credit card fraud
Credit card security relies on the physical security of the plastic card as well as the privacy of the credit card number. Once, merchants would often accept credit card numbers without additional verification for mail order purchases. The Payment Card Industry Data Security Standard (PCI DSS) is the security standard issued by the Payment Card Industry Security Standards Council (PCI SSC). Controlled payment numbers (also known as virtual credit cards or disposable credit cards) are another option for protecting against credit card fraud where presentation of a physical card is not required, as in telephone and online purchasing. For example, most modern credit cards have a watermark that will fluoresce under ultraviolet light.[citation needed] Most major credit cards have a hologram. Three improvements to card security have been introduced to the more common credit card networks, but none has proven to help reduce credit card fraud so far. The majority of smart card (IC card) based credit cards comply with the EMV (Europay MasterCard Visa) standard. Second, an additional 3 or 4 digit card security code (CSC) is now present on the back of most cards, for use in card not present transactions. Code 10 calls are made when merchants are suspicious about accepting a credit card.
Costs[edit]
Credit card issuers (banks) have several types of costs:
Interest expenses[edit]
Charge offs[edit]
Many credit card customers receive rewards, such as frequent flyer points, gift certificates, or cash back as an incentive to use the card. Unlike unused gift cards, in whose case the breakage in certain US states goes to the state's treasury, unredeemed credit card points are retained by the issuer.
Fraud[edit]
In several countries, merchants will lose the money if no ID card was asked for, therefore merchants usually require ID card in these countries. Credit card companies generally guarantee the merchant will be paid on legitimate transactions regardless of whether the consumer pays their credit card bill. Even with the implementation of such measures, credit card fraud continues to be a problem.
Interchange fee[edit]
In addition to fees paid by the card holder, merchants must also pay interchange fees to the card-issuing bank and the card association.[58][59] For a typical credit card issuer, interchange fee revenues may represent about a quarter of total revenues.[60]
These fees are typically from 1 to 6 percent of each sale, but will vary not only from merchant to merchant (large merchants can negotiate lower rates[60]), but also from card to card, with business cards and rewards cards generally costing the merchants more to process. In some cases, merchants add a surcharge to the credit cards to cover the interchange fee, encouraging their customers to instead use cash, debit cards, or even cheques.
Interest charges vary widely from card issuer to card issuer. Fees charged to customers[edit]
Charges that result in exceeding the credit limit on the card (whether deliberately or by mistake), called overlimit fees
In the U.S., the Credit CARD Act of 2009 specifies that credit card companies must send cardholders a notice 45 days before they can increase or change certain fees. Over limit charges[edit]
United States[edit]
The Credit CARD Act of 2009 requires that consumers opt into over-limit charges. Credit card debt has increased steadily. When a cardholder is late paying a particular credit card issuer, that card's interest rate can be raised, often considerably. With universal default, a customer's other credit cards, for which the customer may be current on payments, may also have their rates and/or credit limit changed. Being late on one credit card will potentially affect all the cardholder's credit cards. As of 2007, the United Kingdom was one of the world's most credit card-intensive countries, with 2.4 credit cards per consumer, according to the UK Payments Administration Ltd.[70]
In the United States until 1984, federal law prohibited surcharges on card transactions. Credit cards in ATMs[edit]
Many credit cards can also be used in an ATM to withdraw money against the credit limit extended to the card, but many card issuers charge interest on cash advances before they do so on purchases. Many card issuers levy a commission for cash withdrawals, even if the ATM belongs to the same bank as the card issuer. Credit cards as funding for entrepreneurs[edit]
Len Bosack and Sandy Lerner used personal credit cards[74] to start Cisco Systems. "Consumers’ use of credit cards: Store credit card usage as an alternative payment and financing medium." The credit card industry: a history (Twayne Publishers, 1990).
Manning, Robert D. Credit card nation: The consequences of America's addiction to credit (Basic Books, 2001).
"The financialization of the American credit card industry." Scott, Robert H. "Credit card use and abuse: a Veblenian analysis."
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