How Credit card Works?
Ever wondered how we make purchases just by swiping a plastic card. What happens in the background? Who pays the merchant?
You will be surprised by the technological marvel that allows everything behind the scene when we swipe the card within minutes. A transaction begins when we swipe the card through a reader at the merchant's point-of-sale processing terminal. The terminal dials a stored number to call the processing network. The reader sends cardholder's account information stored in the magnetic stripes in the back of the card to the processing network (also known as acquirer) for authorization to complete the transaction. The acquirer then connects to the card holder's bank that issued the card to authenticate the information. The issuer bank authenticates and validates the card by verifying the card number, expiration date, card usage and credit-card limit and sends approval or rejection notice to the acquirer. The acquirer also verifies the merchant id. The acquirer then send approval code back to the business' terminal so the transaction can be completed. Transaction details appear on the cardholder's next account statement.
Single dial-up transactions are processed at 1,200 to 2,400 bits per second (bps), while direct Internet attachment uses much higher speeds
What is a Credit Card?
A credit card is a payment card issued to a person for purchasing goods and services and obtaining cash against a line of credit established by the issuer. Credit cards can be of two types: those issued by merchants and vendors, such as department stores or oil companies, and general purpose credit cards issued by banks. A credit card is a great financial tool. It can be more convenient to use and carry than cash, and it offers valuable consumer protections under federal law. At the same time, it's a big responsibility. If you don't use it carefully, you may owe more than you can repay, damage your credit rating and create credit problems for yourself that can be difficult to fix.
Responsible use of credit card is a great way to start building your credit history. A good credit history is very important in deciding your rate when you want car loan, home loan, insurance or even another card. Even, at times, employers do check your credit history before offering a job.
Chances are your mail is full of offers from credit card issuers. How do you know if the time is right for a credit card? Here is some important information that may help you determine whether you're ready for plastic, what to look for when you select a company to do business with, and how to use your credit card responsibly. You can find an indepth understanding on the subject at http://www.pueblo.gsa.gov/cic_text/money/credit-report/rscredit.htm
Building a Better Credit Record
You may be receiving several junk mails regularly inviting you on pre-approved cards, offering promise to wipe out your debt with a Wisk of magic wand.If your loan application is denied, credit card application rejected, or your insurance premium is very high, it's time to take a stock of the situation to understand your right and get help to improve you credit record. This FTC publication will help you understand and legally improve your credit report http://www.pueblo.gsa.gov/cic_text/money/credit-record/crrecord.htm
How to Compare Credit Cards
Not all credit cards are equal so when you compare credit card offers it can be challenging. Additionally, what is best for one person may not be best for another.
When considering which credit card is best for you consider and look at several factors, such as: the introductory APR, the fixed interest rate, annual fees, rewards programs, member benefits, and other card member services.
If you are the type of person that pays their entire credit card balance each month on time then a low interest rate credit card is not as important as one with no annual fees or great credit card benefits.
However, most people are not that disciplined about paying off their credit cards in full and on time every month. If you are occasionally late and carry a balance on your credit cards then a low interest credit card might be right for you. The difference between a low 10% APR credit card interest rate and a higher 20% APR credit card interest rate is significant over time.
In addition to low interest rates and the annual fees you pay on a credit card, you should also consider other member benefits, such as rewards programs and cash back programs. Some credit cards offer programs that reward you for using their credit card for purchases. Frequent flyer programs are an example.
Cash back credit cards actually give you cash back or credit toward additional purchases. You receive a small percentage of cash back for the purchases you make with that card. Credit cards that offer cash back programs are the Chase Cash Plus? Rewards Visa Card and the Citi? Dividend Platinum Select? Credit Card.
Other things to consider when you compare credit cards are:
1. membership benefits such as travel insurance and baggage protection while traveling.
2. type of credit needed for approval
3. online account access and bill payment services
4. unauthorized spending protection
When determining what the best credit card is for you consider the interest rate, the annual fees, the programs offered and the member benefits.
Choosing a Credit Card
Credit card is such a convenient tool to use, but its purchase is not so. Shopping for credit card can be tricky with so many available choices to pick from. It's advisable to spend effort to research various available choices and see which one fits your need and spending habit. No card is best for all. If you choose a wrong card, you may find yourself in trouble later. Learn to look beyond hallubula and haziness of initial/introductory offer. Here is a useful article on this subject: http://www.pueblo.gsa.gov/cic_text/money/choosecard/cards.htm
Consumer Handbook to Credit Protection Laws
The Consumer Credit Protection Act of 1968--which launched Truth in Lending disclosures -- was a landmark legislation. For the first time, creditors had to state the cost of borrowing in a common language so that you --the customer-- could figure out exactly what the charges are, compare costs, and shop around for the best credit deal. Since 1968, credit protections have multiplied rapidly. The concepts of fair and equal credit have been written into laws that bar unfair discrimination in credit transactions, require that consumers be told the reason when credit is denied, let borrowers find out about their credit records, and set up a way to settle billing disputes. It is important to know your rights and how to use them. This handbook explains how the consumer credit laws can help you shop for credit, apply for it, keep up your credit standing, and, if need be, complain about an unfair deal. It explains what you should look for when using credit, details what creditors look for before extending credit, and reviews the laws' solutions to discriminatory practices that have made it difficult for women and minorities to get credit. http://www.pueblo.gsa.gov/cic_text/money/protection-laws/ccredit.htm
ID Theft: What's It All About?
The Federal Trade Commission has published this booklet to help raise consumer awareness of identity theft.
If you or someone you know is a victim of identity theft, please visit www.consumer.gov/idtheft. The information you enter there becomes part of a secure database that's used by law enforcement officials across the nation to help stop identity thieves. The site also has links to useful information from other federal agencies, states and consumer organizations.
You also may want to call 1-877-ID THEFT, the FTC's toll-free ID Theft Hotline, where counselors help consumers who want or need more information about dealing with the consequences of identity theft. http://www.pueblo.gsa.gov/cic_text/money/idtheftwhat/idtheftwhat.htm
Credit Card and Students
One of the myths that seems to gain momentum each year is that most students are buried in debt. This is simply not the case. In fact, most college students manage their debt responsibly. Recent studies show that students manage their credit card accounts as well or better than the older adult population. Read full report at http://www.yourcreditcardcompanies.com/forconsumers/resources.asp
What's in a credit history?
Your credit history is contained in a credit report that's kept on file by credit bureaus. This report might include:
， List of credit card accounts
， How promptly you've paid off credit cards and loans
， How well you have handled other bills, such as rent and utilities
， Your checking and savings account histories, including bounced checks
， Your total outstanding debts
， How much credit you still have available on your cards
How are credit scores different from credit report?
A credit report is an accumulation of information about how you pay your bills and repay loans, how much credit you have available, what your monthly debts are, and other types of information that can help a potential lender decide whether you are a good credit risk or a bad credit risk.
Credit scores are based on formulas that use the information in your report, but they are not a part of your report. ＾Fair, Isaac and Company￣ came up with a proprietary scoring formula that most creditors use, although there are other scoring methods that are used for various purposes. This score essentially boils down all of the information in your credit report to a single three-digit number. This gives creditors an easier way of making decisions about your creditworthiness. These numbers range from 300 to 850, with the higher number indicating a better credit risk.
Tips for Credit Cards
There are many advantages to having a credit card such as being able to purchase items online and make hotel and car reservations. The way you handle your purchases should be taken seriously. Following are a few tips and suggestions about credit cards.
1. Credit cards are just like a loan-you have to pay what you owe - so try and not overcharge more than you can afford to pay.
2. Keep track of how much you spend on your credit card. Remember that incidental and impulse purchases add up fast.
3. Save your credit card receipts. Compare them with your monthly bill. Promptly report problems to the company that issued the card.
4. Never lend your credit cards to anyone.
5. Owing more than you can repay can damage your credit rating. That can make it hard to finance a car, rent an apartment, get insurance or even get a job.
6. Pay your credit card bill on time, and in full when possible. If you don't, you'll have to pay finance charges on the unpaid balance-and it takes forever to get caught up if you just pay the minimum.
Federal law limits your liability for unauthorized charges to $50 per card.
Getting Help
Despite your best efforts, you've developed a credit or debt problem that requires help and despite your best efforts, it's not getting any better. Don't panic, there are people who can help you.
Below you'll find a number of sites that can help you in this difficult situation.
The organizations listed in this section are government or non-profit counseling organizations. Don't be fooled by organizations that promise to repair your credit problems over night. There are very few quick fixes. This is especially true if the organization promises to solve all your problems for just a fee.
With any business, you should check out the organization with your local Better Business Bureau or a similar organization to make sure it is reputable. A little homework up front can save you a lot of pain later.
Several organizations are described here. A more complete list is provided below:
The Federal Trade Commission's website is a rich source of financial information for both consumers and companies.
The National Foundation for Credit Counseling (NFCC) is a national non-profit network of 1,450 member agencies designed to provide assistance to people dealing with stressful financial situations. NFCC is the nation's oldest and largest non-profit organization dedicated to budget and credit education and counseling. NFCC provides consumers with confidential money management and homeowner counseling and educational services.
The Association of Independent Consumer Credit Counseling Agencies (AICCCA) is a national membership organization, established to promote quality and consistent delivery of credit counseling services. The Association fulfills its mission by establishing a consensus among consumer professionals regarding service standards and professional industry conduct, as well as by establishing and maintaining strong relationships with credit management professionals and consumers.
Credit Reports can be ordered directly from one of these
credit bureaus: Experian (formerly TRW), Trans Union and Equifax. Check out their websites for ordering information. While the bureaus are expected to share information, it may be wise to review a credit report from each bureau to be certain you know what information is being reported about you. There is usually a small charge to receive your credit report.
For More Information...
For your credit report, contact the credit bureaus:
Equifax Information Service Center - www.equifax.com
800-685-1111
P.O. Box 740241, Atlanta, GA 30374-0241
Experian Information Solutions, Inc. - www.experian.com
888-397-3742
P.O. Box 2002, Allen, TX, 75013
Trans Union Corporation - www.tuc.com
800-888-4213
Post Office Box 1000, Chester, PA 19022
GLOSSARY
Here are some definitions of terms that you may find useful as you review material on this site.
Annual Fee: A yearly fee charged by some credit card issuers to cardholders who agree to use the card in accordance with the card's rules. The card issuer must notify cardholders if the card carries an annual fee.Annual Percentage Rate (APR): Also known as the interest rate. The yearly rate or percentage that one pays on credit balances in the form of interest.
Automated Teller Machine (ATM): Allows customers to perform banking transactions anywhere and at anytime. By using a debit or ATM card at an ATM, individuals can withdraw cash from checking or savings accounts, make a deposit, or transfer money from one account to another. You can also get cash advances using a credit card at an ATM. Individuals should also be aware that card issuers and ATM owners charge transaction fees - ranging from $0.50 cents to $3 per transaction - for using another bank's ATM.
Cash Advance: A borrower may obtain cash on the spot by using their credit card at a bank or an ATM. The amount of the cash advance is deducted from your available credit line. A fee is often charged when obtaining cash advances. In addition, the interest rate is usually higher than on purchases and there is typically no grace
period.Cosigner: A cosigner agrees to the responsibilities of a credit application with you, which basically means that they take on liability for your debts. A family member or friend who has an established credit history may be eligible to be cosigners.
Credit: An arrangement between a lender and a borrower whereby a lender lends money to a borrower, and the borrower agrees to pay it back.
Credit Card: A type of payment card that involves a revolving line of credit that is issued to the cardholder. They provide flexibility, allowing you to pay your whole bill at once or over time in increments. If you do not choose to pay your balance in full each month, you will be required to make at least the minimum payment and to pay finance charges on the remaining balance. Credit cards are issued by banks, credit unions, and some retailers like department stores and gasoline companies, among others.
Credit Line: Also referred to as your credit limit. This is the maximum amount you can borrow using your credit card.
Credit Score: This score is computed based on information in your credit report and helps lenders to make judgments about granting you a loan or a credit card. Negative information on your credit report can lower your credit score and harm your ability to get future loans, rent an apartment or even get a new job.
Debit Cards/ATM Cards: Debit and ATM cards are types of payment cards that provide a convenient and secure alternative to cash and checks. They allow you to make a purchase and to access your bank accounts anywhere through the use of an ATM machine.
Grace Period: A period of time when you're not charged interest for purchases you've made. For example, if the billing date on your credit card bill is May 1, you may have until May 25 to pay your balance in full. If you do, you will not be charged interest. If your payment arrives after May 25 - or if you don't pay the entire balance - you may be charged interest from the date of purchase as posted. Some accounts have no grace period, which means interest is charged on purchases from the date they are posted.
Interest Charges/Finance Charges: The price paid to a lender for the use of borrowed money. Interest is charged as a percentage of your outstanding balance. This percentage, or interest rate, can vary over time from card to card.
Issuer: Institutions that provide a credit line to a consumer through a payment card are called issuers. Issuers can include banks, credit unions or savings and loan associations, and retailers such as department stores or gasoline companies.
Outstanding Balance: The total amount of money that is owed to the financial lender after a payment is made. For example if you have a $500 credit card balance, and you pay $100 when you receive your statement, your outstanding balance is $400.
Over the Limit: When a borrower has accessed an amount of money larger than what is available in their credit line. Depending on the credit issuer, this may be permitted, but the borrower will usually be charged an Over the Limit fee.
Overdrawing an Account: Withdrawing more money from a checking or savings account than is available. This can result in a fee being charged or the withdrawal or check being declined.
Payment Cards: The most familiar types of payment cards are credit, charge and debit cards. These financial tools allow consumers to make purchases online, over the phone or in person at merchants across the world.
Secured Cards: Secured cards are a great first step for those with little or no credit history. This type of payment card requires that a security deposit be made in order to establish a credit line. Your credit line will typically be equal to the amount of your deposit.
