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How do credit cards work?

Credit cards have become an inseparable part of today’s world. You may be paying off every little thing with your card, but you must also know about its functioning and processing. They have become a useful source of identification, and also provide a reasonable window of repaying the money at the end of each month.

Credit cards can be issued by a bank or a credit card company, after verifying the account of the client. The cardholder can now make purchases at all merchants that accept credit cards. At the time of making a purchase, the cardholder signs the receipt with the PIN number and amount to be paid, which implies the consent of payment. The merchant verifies the card by electronic verification system to know whether the card is valid and holds enough credit to make the desired purchase. This is done by using the data present on magnetic strip or chip present on card. At the end of each month, cardholders receive the statement which lists out all the purchases made, outstanding amount and the total payable amount. The cardholder may choose to pay a minimum defined amount of the bill, or amount higher than the total. If complete balance is not paid by due date, interest has to be paid on remaining amount.


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