What is Credit Cards ? How do Credit Cards work

What is Credit Cards ?

Credit card is a small plastic card issued to users as a System of Payment. It allows its holder to buy goods and services based on the holder’s promise to pay for these goods and services.

What is Credit Cards ? How do Credit Cards work

Credit Card Security relies on the physical security of the plastic card as well as the privacy of the credit card number. Therefore, whenever a person other than the card owner has access to the card or its number, security is potentially compromised compared to debit cards and chequeens, a credit card allows small short term loans to be quickly made to a customer who does not need to calculate balance remaining before every transaction, provided the total charges do not exceed the maximum credit limit for the card, credit card also provides more fraud protection than debit cards.


Credit cards are now accepted everywhere. The credit card payment on the online network can be categorized into three types:-

(1). Payment using plain credit card details.

(2). Payments using encrypted credit card details.

(3). Payments using third party verification.

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The credit card processing is not, however, simple:-

  • Most card issues charge interest from the day a charge is posted to the account, if payment is not made in full, monthly. Some charge interest from the date of purchase, Several days before they have even paid the store on our behalf.
  • For the merchant, credit card transactions results in immediate credit to the merchant’s bank account. They have the same effect as cash.
  • By law, the cardholder’s risk of losing a credit card amounts to certain amount as prescribed by card company. A cardholder is expected to notify the issuing bank immediately upon discovering the loss of the card.
  • A cardholder may dispute charges or purchases to the card issuer. In this case, the merchant’s acquiring bank can reverse payments or adjust payments as the situation warrants.

The Process followed in credit card transaction are given here under :-

  • A customer presents his or her credit card information (along with an authenticity signature or other information such as mother’s maiden name) securely to the merchant.
  • The merchant validates the customer’s identity as the owner of the credit card account.
  • The merchant relays the credit card charge information and signature to its bank or online credit card processors.
  • The bank or processing party relays the information to the customer’s bank for authorization approval.
  • The customer’s bank returns the credit card data, charge authentication, and authorization to the merchant.

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