What Is A Credit Card

What Is A Credit Card
Photo by Sean MacEntee – CC BY 2.0

Every working citizen has at least one credit card. Some even have as many as 10. Moreover, some parents who can afford to trust their children provide an extension of their credit card to them. So what is a credit card? What is this small card that people carry around to make shopping and purchasing very convenient? Aside from being a convenient mode of payment, the credit card is also used as a source of identification. For example, many online shops strongly encourage (sometimes, even demand) that you pay them using your credit card so they easily know who and what institution to charge without your physical presence. The emergence of the credit card has brought convenience and misfortune to other people. While it makes shopping easier, lack of control in credit card usage can ruin your financial status. The aim of this article is to answer the question what is a credit card in the most comprehensive way possible.

How Credit Card Works

This plastic card’s most important feature is the magnetic strip. Without this magnetic strip, that plastic card will just be a useless plastic card. This magnetic stripe found at the back of your credit card is also called a magstripe. Iron-based magnetic particles are found in that magnetic stripe that’s covered in plastic film for protection. It may be a little complicated to understand the mechanism of the credit card but to make it simple, think of it this way: divide the mechanism of your credit card into three divisions or tracks. Each track holds different kinds of information. The credit card uses one or two tracks, with the third one reserved for the country code, currency unit, and amount of money issued. This track is called the read/write track. Meanwhile, the first track of the credit card contains the account number, country code, name, expiration date, and other discretionary data. The first track is dedicated to the proprietary use. The second track contains the same information but it is for the bank.

When the cashier swipes your credit card using the magnetic reader, it dials a default number to contact an acquirer. The acquirer validates the authentication using the following credit card details: merchant ID, valid card number, expiration date, and credit card limit to verify the transaction. Different companies have different numbering systems but most credit card systems use the ANSI Standard X4.13-1983 system.

Once the transaction has been approved, you can purchase the item and pay for it later on toward the end of the billing cycle. To avoid risking non-payment from the client, card issuers usually have credit limits for their clients. The credit limit is decided based on the monthly income, home ownership, number of applications for credit card, and debt. You should also be aware that although credit cards will make your life easier by allowing you to purchase items and pay for it later on (usually works on huge purchases), the bank or card issuer will add interest at a certain time. That’s why it’s always important to check the credit card package before you apply for it.

Advantages and Disadvantages Of Credit Cards

Weighing the advantages and disadvantages of a credit card is the most important part of owning one. It can make life easy but abuse of credit card can be a big problem. With credit cards, you don’t need to bring large amounts of money for a huge purchase. You don’t even have to worry about not having cash. It’s also a good tool when moving to a new location. If you are using a credit card abroad, you don’t have to worry about conversion of currency. Credit cards also save you the risk of paying for something that may have problems in the future by withholding payment. Paying with credit card is easier than personal checks because the information can immediately be verified. Credit cards are also for people who like the convenience of having all expenses in one monthly bill.

However, it comes with heavy responsibilities too. It’s very common for a lot of people to just keep on spending because they think that their credit cards have no limits. When it’s time to pay for it, that’s the only time they realize the amount of expenses they’ve accumulated. Worse, they even have to pay more because of monthly interest charges. The worst mistake ever made by delinquent credit card holders is not to act on credit card debts right away. They don’t think about the late fees that accumulate. Sadly, many citizens have declared bankruptcy largely due to credit card debts. Also, credit card numbers hold a lot of information. Many people have been swindled because of giving delicate information to questionable people. This form of thievery can leave your coffers empty.

In the end, it takes great responsibility to maintain the privilege of being able to buy something and not pay for it right away. Remember, you need to keep track of your expenses. Try taking advantage of your bank’s monitoring features and keep your credit card information safe at all times.

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