The fact that everyone of getting a credit card doesn’t mean you should get one as well; what you don’t know is that you might just be adding burden to your financial status. Especially during this economic downturn, getting into debts could mean much more than never-ending monthly payments but also large interest rates. You might end up becoming a debtor in no time even though initially you promise to yourself that you will use your credit card only when it is inevitable, you will soon give into the shopping craze of credit card holders. Hence, it becomes necessary that you are aware of credit card debt facts before getting into debts.
Applying for a Credit Card:
The moment you clock 18 you are available to have a Credit card. So when you apply for a Credit card, your application is carefully screened and a credit limit is worked out for you based on your financial capability, qualifications, age, etc. And the bank that gives you the Credit card is called the issuing bank.
What is a Credit limit?
The credit limit is the maximum amount of money you can spend or borrow using your Credit card. This limit will also be determined by many things like your income, source of income, etc. Also, your previous year’s track record regarding spending and repayment will determine if the credit limit will be revised upwards or downwards.
How does it work?
The working of the Credit card business is based on a mutually beneficial arrangement which is supported by an elaborate behind the scene system between the issuing bank, international networks like MasterCard, Visa, American Express, and much more other and merchant establishments like travel agencies, hotels, shopping malls, etc.
How payment is made
So any time you visit a store where you want to make a purchase your credit card will be swiped on a swipe machine. This machine is connected to a central computer belonging to the network, which in turn is connected to all issuing banks. The machine is built to be able to determine if you have a sufficient fund to make the purchase or not and approves or rejects the transaction. You will then be required to sign the charge slip which is verified with the signature present on the back of the card once the transaction is approved. Both you and the merchant keep a copy of the receipt.
The merchant then deposits the receipt with their bank which credits their account in the amount charged. The bank then sends this transaction electronically to the international network (Visa, Master Card, Discover, etc.) which in turn continues the transaction by crediting the bank and then charges the issuer of the card.