How Credit Card Works : 2022 Ultimate Guide

how credit card works
how credit card works

Knowing “how credit card works” shall make you informed user of the credit card which is used by millions of people . It is one the most convenient way to shop online or at the grocery store. In this article, we will show you how credit cards work in detail from A to Z.

Learn history for knowing how credit card works

The history of credit cards can be traced back to the 1800s, when goldsmiths began issuing paper money that could only be used for purchases. This did not last long and was eventually replaced by a system in which merchants issued their own special credit notes to customers who paid with cash.

Encyclopedia Britennica  informs that 

The use of credit cards originated in the United States during the 1920s, when individual firms, such as oil companies and hotel chains, began issuing them to customers for purchases made at company outlets. The first universal credit card, which could be used at a variety of establishments, was introduced by the Diners’ Club, Inc., in 1950. Another major card of this type, known as a travel and entertainment card, was established by the American Express Company in 1958. .[source]

How credit card works ,actually?

Credit cards are plastic that has a magnetic strip on the back. This strip contains a unique code, which allows customers to make purchases using their credit card. The code is generated by an electronic device called a “chip reader.” When you swipe your credit card at the checkout counter, it passes through the chip reader, and this generates another unique code for your purchase.

Credit cards work by allowing you to borrow money from a bank on your behalf. There are many types of credit cards that vary in interest rates, fees, and benefits. Some credit cards offer rewards for spending money at certain stores or online. Other cards give you discounts when shopping at specific retailers.

Credit cards advantage

The biggest advantage of credit cards is that you can use them anywhere. The second biggest advantage is the fact that they are widely accepted, and the third advantage is the fact that they offer great rewards and benefits like cash back when you spend a certain amount every month. Here is a list of ten amazing  advantages of credit cards.

Credit cards disadvantages 

No dobut credit cards are convenient way of payment and has many other benefits attached, but they also come with some disadvantages. First of all, you should know that most banks charge high interest on credit card debt. Also, if you have a bad credit score then it will be hard to get approved for a new loan. You can  see this list of disadvantages of  using credit cards

Types of Credit Cards

There are many types of credit cards, but the most common ones are cash back, travel rewards, and retail cards. A cash back card is one that gives you a percentage off at the store when you use it to make a purchase. Travel rewards credit cards give you points for every dollar spent on airfare or hotels. Retail credit cards give you points for every dollar spent in certain stores like Walmart or Best Buy. These types of reward programs allow customers to earn money without having to spend too much money purchasing goods and services from their favorite retailers.

Most common types of credit cards

What is the difference between debit and credit cards ?

Debit cards are used to make purchases, while credit cards are used to earn rewards. Debit and credit transactions both use a payment network called Mastercard or Visa. When you pay with a debit card, the transaction is complete immediately because your money has already been deducted from your bank account. With credit cards, you need to wait for the transaction to be processed before you can receive the funds in your bank account.

How credit score affect your chance to get a credit card ?

Your credit score is one of the most important aspects of your financial life. It determines whether you can get a loan for a car, house or any other type of credit. Your score is determined by your payment history, debt ratio and how long it took you to pay off past debts.

The main influence of your credit score is how you pay your bills on time. If you are a big spender, then this will make it harder for you to get approved for loans or credit cards. On the other hand, if you are a bigger saver, then this will give lenders more confidence that they can trust you with their money.

What do credit cards do to your credit score?

One of the key aspect of understanding “How Credit Card Works” is to know about the impact of your credit card repayment history will have on your credit score . If you may only minimum amount or make late payment of outstanding bill of credit cards, you will be marked poorly on repayment history. That will have an adverse impact on your credit score .

Remember, credit card outstanding payments default will affect your credit score worse than doing late payments.

How credit card interest works?

Credit cards charge different rates of interest depending on the type of account you have. This is the core of ” how credit card works ” .The most common types of credit card are , revolving credit account ,debt consolidation card or 0% interest balance transfer cards. Credit card is the highest rate of interest that you can pay, with a typical APR of around 20%. Revolving credit accounts offer lower rates than a standard bank loan at about 10-15%. Debt consolidation loans work similarly to refinance loans with an APR of about 7-8%.

What is APR on credit cards?

The APR on a credit card is the annual percentage rate (APR) that will be charged for each loan payment. The APR is calculated by dividing the total interest that is charged over the life of the loan by one year.

What is a chargeback on credit cards?

A chargeback is when a customer requests that a credit card company reverse the charges on the card. This usually happens because of an item that was never delivered, or when something goes wrong with the purchase after it arrives or an error made by the merchant or some other problem with the transaction.Credit card issuers can be ordered by courts and regulators to reimburse customers in this situation, but it takes time and is expensive.

The only way around this problem is if you can prove your company doesn’t run credit card transactions through automated systems or if you employ an employee who manually reviews each transaction before processing it with the system or sending out a receipt (whichever comes first).

When & how of Cancelling a credit card 

If you have a high balance on your credit cards, there are a few ways to cancel them. You can call the number on the back of your card and ask for an immediate balance transfer. Or you can use one of many online companies that offer this service for free.

When a credit card is cancelled, it is not really destroyed. All that happens is the account holder’s name and address are removed from the system. This means they will no longer be able to access their money through automatic payments or direct deposits. If a person cancels multiple cards in quick succession, then it can cause issues where the bank won’t release funds for several days after cancelling all of them.

Filing Bankruptcy for Credit Card Debt

Bankruptcy is a process that allows you to get rid of some of your debt. The most common types of debt are credit card and medical bills, but it can also be used for student loans or mortgages.The good news is that bankruptcy can be used to wipe out a huge amount of debt. The bad news is that it isn’t an easy process for most people, and only about 10% of those who file bankruptcy get all their debts wiped out.

If you have credit card debt and are unable to pay it off, then you should consider filing for Chapter 7 bankruptcy. This type of bankruptcy is designed to help people with bad debts. The best part is that most people who file Chapter 7 do not have to give up their possessions or their homes when they file.

Credit card scams ,frauds and other issues

credit card scams

The most common credit card issues are credit card scam, frauds and identity theft. Fraud occurs when someone uses your credit card without your permission, or when something else goes wrong with the card like a fraudulent transaction at a gas station. Other common issues include unauthorized transactions, charge-backs, non-sufficient funds (NSF), and account inactivity.

Is there law for credit card fraud protection?

In United States, a credit card user is fairly protected against fraud and scams through a federal law- The Fair Credit Billing Act (FCBA) – against any erroneous or fraudulent credit card charges and other billing errors. Under the the FCBA the maximum liability of a credit card user for an unauthorized use of the card is only $50 . The law protects you if a consumer raise objection with card issuer against fraudulent or unauthorised use of his/her credit card within 60 days of statement date.

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