How do Credit Cards Work?

Credit Cards

Because of the incomparable and always changing complexity of banking process, there are definitely a lot of ways of utilizing your means without having to actually spend a buck on the spot. If you are someone who enjoys various benefits of banking, shopping and all the luxuries that life and money can offer, you surely have heard of the joys of having credit cards. For people who have been in the corporate world for quite some time, credit cards can be considered as a necessity.

Credit cards are small plastic cards that are being issued to users or account holders that can be a mode of payment in most commercial establishments. There are even things and services that you cannot avail if you do not have one. This usually happens when trying to purchase online. Credit cards are usually required as it also stands as a proof of identity and ability to pay. However, you should always seek guidance of Your Personal Financial Mentor when you are using a credit card because he can provide you useful tips in order to manage your finances effectively.

But really, how do credit cards work? As mentioned, these are laminated cards that contain information such as the name of the holder and signature or sometimes a picture. Using or swiping these cards automatically authorizes the person whose name appears on the card to charge purchases or services on his account.  These charges will then be billed to the card holder. Through the electronic verification system, an establishment or merchants are able to check and verify if the card has sufficient balance to cover the transaction. The information needed for the credit cards are obtained from the chip on the card.

A billing statement is sent monthly to the credit card holder, and this statement indicates the transactions that were made using the card. It also includes the fees, late charge if there’s any, and the total amount owed.  The user is given time to check if all transactions are correct. If yes, then a minimum payment set by the bank should be paid on time to avoid any additional charges that late payments may incur.

Credit cards can be beneficial to a user if he or she is aware of how it works and how to use it to his/her own advantage. Other than the convenience that it gives, it can also be viewed as an opportunity to make purchases even when you do not have sufficient cash on hand. Credit cards also offer cash advances in cases of emergency. Users can withdraw money using the card to any machine that accepts it. There are also other benefits of having credit cards such as having redeemable points that you can get from transactions made using your card. These points can be converted to various promos or packages in the form of cash, products or airline tickets.

If a person knows how to use credit cards wisely, then having these plastic cards can surely be more of an advantage than a disadvantage. Remember that credit cards are merely created to bring convenience to users, and not to let you be heavily burdened of the charges and monthly bills.


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November 4, 2013 How do Credit Cards Work?