How Credit Cards Work

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Credit cards are used worldwide for payment of goods and services, both in real daily business and private life as well as in online money transactions.

It is issued in the case of MasterCard or Visa by banks in cooperation with the credit card companies, or – in the case of Diners and American Express – directly from the card company. These four companies share the total European credit card market.

Users have limits on the amount they can carry, but are not required to pay the full amount each month. Instead, the balance (or ‘revolving’) accrues interest. You can make only a minimum payment and pay interest on the outstanding balance. If the total balance is paid, no interest is paid.

The biggest advantage is the flexibility it gives the user, by paying balances in full on due date or monthly. The board sets the minimum payment and finance charges for the outstanding balance.

Credit cards can also be used at ATMs or a bank for a cash advance but, unlike debit cards, interest is charged and in some countries tax is levied because it is a loan.

The fees and transaction costs borne by the dealer from whom the cardholder buys goods or services are collected in the form of a discount. The amount of the discount is given depending on the sector and transaction volume of the seller and is usually different from that of the credit card company. In exceptional cases, the dealer can negotiate on this subject.

The credit card is a plastic (usually PVC), embossed on the front, and cards without embossing can be overdrawn because of the imprinting. The imprinter charges the card immediately, but only if the transaction documents by the seller are filed with the card company. On the back of each card bears the signature of the cardholder. It has a magnetic strip on the back, on which the map data is stored.

Since 2004, some banks and savings banks introduced a magnetic strip and chip mounted on the front. MasterCard publishes credit and debit cards which enable a contactless payment in accordance with the ISO / IEC 14443 processes.

When you buy with a credit card, usually the lender charges the account as to where they were purchased. There is a mode of payment which pays a portion of purchases each month, it can be without interest or with interest, depending on the plan. If you take the interest-free payment plan and does not cover the full month payment, the balance becomes a common debt and you pay interest on it.

When paying by card identification is usually  required, in addition to the signature on the promissory voucher to prove that you own the card. There are some exceptions which do not entail signing the receipt, called “authorized without signature” and is often used in places with large crowds, such as cinemas, fast food restaurants and similar places.



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