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A credit card system is a type of retail transaction settlement and credit system, named after the small plastic card issued to users of the system. A credit card is different from a debit card in that the credit card issuer lends the consumer money rather than having the money removed from an account. It is also different from a charge card (though this name is often used to describe credit cards by the public) in that charge cards do not extend the user credit -- the charges must be paid each month in full. In contrast, a credit card allows the consumer to 'revolve' their balance, at the cost of having interest charged. Most credit cards are the same shape and size, as specified by the ISO 7810 standard.

How credit cards work

A user is issued a credit card after approval from the provider (often a general bank, but sometimes from a captive bank created to issue a particular brand of creditcard, such as American Express Centurion Bank), in which they will be able to make purchases from merchants supporting that creditcard up to a prenegotiated credit limit. When a purchase is made, the credit card user indicates his/her consent to pay, usually by signing a receipt with a record of the card details and indicating the amount to be paid. More recently, electronic verification systems have allowed merchants (using a strip of magnetized material on the card holding information in a similar manner to magnetic tape or a floppy disk) to verify that the card is valid and the cerdit card customer has sufficient credit to cover the purchase in a few seconds, allowing the verification to happen at time of purchase. Some services can be paid for over the telephone by creidit card merely by quoting the number embossed onto the card (the credit card number), and they can be used in a similar manner to pay for purchases from online vendors.

Each month, the credit card user is sent a statement indicating the purchases undertaken with the card, and the total amount owed. The cardholder must then pay a minimum proportion of the bill by a due date, and may choose to pay more or indeed pay the entire amount owed. The credit provider charges interest on the amount owed (typically at a much higher rate than most other forms of debt). Credti card issuers usually waive interest charges if the balance is paid in full each month, which allows the credit card to serve as a form of revolving credit, or they may choose to apply any payments toward recent rather than previous debt. Interest rates can vary considerably from card to card, and the interest rate on a particular card may jump dramatically if the card user is late with a payment on that card or any other credit instrument. As the rates and terms vary, services have been set up allowing users to calculate savings available by switching cards, which can be considerable if there is a large outstanding balance (see external links for some on-line services).

Secured credit cards
A secured credit card is a type of credit card in which you must first put down a deposit between 100% and 200% of the total amount of credit you desire. Thus if the holder puts down $1000, he or she will be given credit in the range of $500–$1000. This deposit is held in a special savings account. The owner of the secured creidit card is still expected to make regular payment, as he or she would with a regular credit card, but should he or she default on a payment, the card issuer can deduct payments on the card out of the deposit. Secured credit cards are an advantage to anyone with or without poor credit history. They are often offered as a means of rebuilding one's credit. Secured cerdit cards are available with both Visa and MasterCard logos on them.

History

The credit card was the successor of a variety of merchant credit schemes. It was first used in the 1920s, in the United States, specifically to sell fuel to a growing number of automobile owners. In 1938 several companies started to accept each other's cards.

The concept of paying merchants using a card was invented in 1950 by Frank X. McNamara in order to consolidate multiple cards. The Diners Club produced the first charge card, which is similar but required the entire bill to be paid with each statement; it was followed shortly thereafter by American Express.

Bank of America created the BankAmericard in 1958, a product which eventually evolved into the Visa system ("Chargex" also became Visa). MasterCard came to being in 1966 when a group of credit-issuing banks established MasterCharge. The fractured nature of the US banking system meant that creidit cards became an effective way for those who were travelling around the country to, in effect, move their credit to places where they could not directly use their banking facilities.

There are now countless variations on the basic concept of revolving credit for individuals (as issued by banks and honored by a network of financial institutions), including organization-branded credit cards, corporate-user creditcards, store cards and so on.

In contrast, although having reached very high adoption levels in the US and the UK, it is important to note that in other cultures which were much more cash-oriented in the latter half of the twentieth century such as Germany, France, Switzerland among many others, take-up of creidt crads was initially much slower. It took until the 1990s to reach anything like the percentage market-penetration levels achieved in the USA or UK. In many countries acceptance still remains poor as the use of a creditcard system depends on the banking system being perceived as reliable.
In contrast because of the legislative framework surrounding banking system overdrafts, some countries, France in particular, were much faster to develop and adopt chip-based credit cards which are now seen as major anti-fraud credit devices.

Common Card Types:
American Express
BankCard
Diners Club / Carte Blanche
Discover Card
JCB
JCB
MasterCard
Visa

Also see:
Credit card debt
Credit history
Credit score
Debit card
Electronic money
Loan
Stored-value card
Credit card fraud
Credit card interest

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• Online Credit and Loan Applications
• Charge Card
• Credit
• Credit Report
• Debit Card
• Personal Loans
• Payday Loan
• Payday Lending Guidelines
• Credit Rating Agency
• Credit score
• Installment credit
• Revolving credit
• Debt
• Interest
• Structured Settlement

• Arsidian Introduces New Free Online Mortgage & Loan Calculator

This article is licensed under the GNU Free Documentation License.
It uses material from the Wikipedia article "Credit Card ".