HOW DOES CREDIT CARD WORKS
Swipe the card and purchase is done without any cash. Woosh! Magic right!
A credit card might seem magic but it has to be paid later.
The credit card is a plastic card that lets you pay for your purchase without cash till your credit limit. A credit card is like a loan that you have pay later within a given period. It lends you money over and over with a limit. The amount of money you can swipe or spend at one time is your credit card limit. The credit card limit is given by the bank by looking at your credit score. The higher the score the higher the credit limit.
HOW CREDIT CARDS WORK?
There are a lot of steps involved while making a payment through a credit card. It is not visible while you swipe a card but a lot is going on while you swipe it. The store person, point of sales, and the credit card issuing bank are involved in the transaction.
After finishing your purchase from the store you head to make the payment. The shopkeeper will swipe your card into the point of sales machine. Then the shopkeeper will ask you to enter the pin to authenticate the transaction. Then the machine reads the chip and sends the information to the issuing bank. The bank checks the information such as payment amount, credit limit, the validity of the card and others. If the information is correct the bank approves the transaction. Then the payment will be done. A slip is generated from the machine. You are bound to pay for the transaction in the next bill period.
REPAYMENT OF THE BILL
The issuing bank gives you a certain period to pay the amount back. The period is generally between 20-25 days. It is called the grace period. If you don’t pay the amount in the given time a fee is charged. Interest is charged annually. The credit interest rates are generally based on the type of credit card, credit history, and market interest rates. The minimum payment amount has to be paid off to avoid an interest rate. As you build a stable credit history it benefits you at lower rates and also you can avail of any loans or credit easily in the future.
CREDIT CARD STATEMENT
The issuing bank will send you a billing statement showing the details of the amount to be paid, the due date, and the list of transactions that you have made to purchase. The statement carries all the important details about the transactions made and the repayment of the amount.
CREDIT CARD IS GOOD OR NOT:
If used in the correct way credit cards are beneficial in many ways. It helps you build a good credit score, earn valuable points, provide shopping and travel benefits and other such rewards.
Before applying for a credit card be sure that you will be able to pay back.