Credit card

Credit cards are issued after an account has been approved by the credit provider, after which cardholders can use it to make purchases at merchants accepting that card.

When a purchase is made, the credit card user agrees to pay the card issuer. The cardholder indicates his/her consent to pay, by signing a receipt with a record of the card details and indicating the amount to be paid or by entering a Personal identification number (PIN). Also, many merchants now accept verbal authorizations via telephone and electronic authorization using the Internet, known as a 'Card/Cardholder Not Present' (CNP) transaction.

Electronic verification systems allow merchants to verify that the card is valid and the credit card customer has sufficient credit to cover the purchase in a few seconds, allowing the verification to happen at time of purchase. The verification is performed using a credit card payment terminal or Point of Sale (POS) system with a communications link to the merchant's acquiring bank. Data from the card is obtained from a magnetic stripe or chip on the card; the latter system is in the United Kingdom and Ireland commonly known as Chip and PIN, but is more technically an EMV card.

Other variations of verification systems are used by eCommerce merchants to determine if the user's account is valid and able to accept the charge. These will typically involve the cardholder providing additional information, such as the security code printed on the back of the card, or the address of the cardholder.

Each month, the credit card user is sent a statement indicating the purchases undertaken with the card, any outstanding fees, and the total amount owed. After receiving the statement, the cardholder may dispute any charges that he or she thinks are incorrect (see Fair Credit Billing Act for details of the US regulations). Otherwise, the cardholder must pay a defined minimum proportion of the bill by a due date, or may choose to pay a higher amount up to the entire amount owed. The credit provider charges interest on the amount owed if the balance is not paid in full (typically at a much higher rate than most other forms of debt). Some financial institutions can arrange for automatic payments to be deducted from the user's bank accounts, thus avoiding late payment altogether as long as the cardholder has sufficient funds.

Interest charges

Credit card issuers usually waive interest charges if the balance is paid in full each month, but typically will charge full interest on the entire outstanding balance from the date of each purchase if the total balance is not paid.

For example, if a user had a $1,000 transaction and repaid it in full within this grace period, there would be no interest charged. If, however, even $1.00 of the total amount remained unpaid, interest would be charged on the $1,000 from the date of purchase until the payment is received. The precise manner in which interest is charged is usually detailed in a cardholder agreement which may be summarized on the back of the monthly statement. The general calculation formula most financial institutions use to determine the amount of interest to be charged is APR/100 x ADB/365 x number of days revolved. Take the Annual percentage rate (APR) and divide by 100 then multiply to the amount of the average daily balance (ADB) divided by 365 and then take this total and multiply by the total number of days the amount revolved before payment was made on the account. Financial institutions refer to interest charged back to the original time of the transaction and up to the time a payment was made, if not in full, as RRFC or residual retail finance charge. Thus after an amount has revolved and a payment has been made, the user of the card will still receive interest charges on their statement after paying the next statement in full (in fact the statement may only have a charge for interest that collected up until the date the full balance was paid...i.e. when the balance stopped revolving).

The credit card may simply serve as a form of revolving credit, or it may become a complicated financial instrument with multiple balance segments each at a different interest rate, possibly with a single umbrella credit limit, or with separate credit limits applicable to the various balance segments. Usually this compartmentalization is the result of special incentive offers from the issuing bank, to encourage balance transfers from cards of other issuers. In the event that several interest rates apply to various balance segments, payment allocation is generally at the discretion of the issuing bank, and payments will therefore usually be allocated towards the lowest rate balances until paid in full before any money is paid towards higher rate balances. 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 , or even if the issuing bank decides to raise its revenue.

Benefits to customers

Because of intense competition in the credit card industry, credit card providers often offer incentives such as frequent flyer points, gift certificates, or cash back (typically up to 1 percent based on total purchases) to try to attract customers to their programs.

Low interest credit cards or even 0% interest credit cards are available. The only downside to consumers is that the period of low interest credit cards is limited to a fixed term, usually between 6 and 12 months after which a higher rate is charged. However, services are available which alert credit card holders when their low interest period is due to expire. Most such services charge a monthly or annual fee.

Grace period

A credit card's grace period is the time the customer has to pay the balance before interest is charged to the balance. Grace periods vary, but usually range from 20 to 40 days depending on the type of credit card and the issuing bank. Some policies allow for reinstatement after certain conditions are met.

Usually, if a customer is late paying the balance, finance charges will be calculated and the grace period does not apply. Finance charges incurred depend on the grace period and balance; with most credit cards there is no grace period if there is any outstanding balance from the previous billing cycle or statement (i.e. interest is applied on both the previous balance and new transactions). However, there are some credit cards that will only apply finance charge on the previous or old balance, excluding new transactions.

Benefits to merchants

For merchants, a credit card transaction is often more secure than other forms of payment, such as checks, because the issuing bank commits to pay the merchant the moment the transaction is authorized, regardless of whether the consumer defaults on the credit card payment (except for legitimate disputes, which are discussed below, and can result in charges back to the merchant). In most cases, cards are even more secure than cash, because they discourage theft by the merchant's employees and reduce the amount of cash on the premises. Prior to credit cards, each merchant had to evaluate each customer's credit history before extending credit. That task is now performed by the banks which assume the credit risk.

For each purchase, the bank charges the merchant a commission (discount fee) for this service and there may be a certain delay before the agreed payment is received by the merchant. The commission is often a percentage of the transaction amount, plus a fixed fee. In addition, a merchant may be penalized or have their ability to receive payment using that credit card restricted if there are too many cancellations or reversals of charges as a result of disputes. Some small merchants require credit purchases to have a minimum amount (usually between $5 and $10) to compensate for the transaction costs, though this is not always allowed by the credit card consortium.

In some countries, for example the Nordic countries, banks guarantee payment on stolen cards only if an ID card is checked and the ID card number/civic registration number is written down on the receipt together with the signature. In these countries merchants therefore usually ask for ID. Non-Nordic citizens, who are unlikely to possess a Nordic ID card or driving license, will instead have to show their passport, and the passport number will be written down on the receipt, sometimes together with other information. Some shops use the card's PIN for identification, and in that case showing an ID card is not necessary.

Parties involved

• Cardholder: The holder of the card used to make a purchase; the consumer.
• Card-issuing bank: The financial institution or other organization that issued the credit card to the cardholder. This bank bills the consumer for repayment and bears the risk that the card is used fraudulently. American Express and Discover were previously the only card-issuing banks for their respective brands, but as of 2007, this is no longer the case.
• Merchant: The individual or busine
  
  
  Amanda asked: "My husband runs his own subcontracting business and he is needing to apply for a business credit card. I researched some and so far Discover's business card seems good. Any other ideas?"

  Question posted courtesy of:

  Big Brotha Mike replied: "Well, if he's not planning on carrying a balance and just funneling his spending through a credit card and paying off the balance each month, then you'll want to get the business rewards card that pays the most (e.g. cash back reward) for what his business buys.You can use this rewards calculator to see which business rewards card will pay him the most in rewards for his business's normal spending profile:"

  Sherrie Taylor replied: "Visit this website and compare lot of different credit cards:"

  Evilish13 asked: "I have good credit and im in the market for a business credit card. What company offers the best rates, offers, cash back programs ect? Please give me some ideas on programs i should look into from the major cards like, AE, Discover, MC, and Visa."

  Question posted courtesy of:

  Abcd replied: "if you have good credit you should be able to get a good card I like American Express business card this card give you rewards point that you could redeam just about anywhere free flights or items, check out and go under business credit cards here you will be able to compare them side by side, on rates, fees and rewards, a rewards card is the best way to go. "

  Dfreeman replied: "AE is the best, but also the hardest to get approved for. Check here for more details."

  Sarah M replied: "I use Discover for business and Chase for personal. Here is why:Discover has had a long tradition of being different. When the Discover card was first introduced there was no annual fee, - that may not seem like a big deal but back in the day it absolutely was. Discover credit cards also offer cash back rewards. For a business using Discover for their corporate credit cards this is a big advantage - you get cash back for spending. And the best part about using these particular corporate credit cards is that the cash back rewards are targeted at specific purchases that you will make as a business, such as gas, travel and office supplies. The current standard APR on Discover corporate credit cards is 13.99%. There is also a 0% APR introductory offer. Remember - these cards come with a grace period of at least 25 days when you pay the balance in full each month. This means you can run your business interest free on Discover's money in 25 day cycles.A lot of the others have shorter grace periods - something most consumers don't think to check up on."

  raymond m asked: "I am trying to consolidate my bills and get my credit clear so I can start a business.I have very,very bad credit and I am tryiing to start a business. How would I get a credit card for my business with extremly bad credit. And who will except me?"

  Question posted courtesy of:

  Big Bobby Clobber replied: "You may be able to get a secured card to start with."

  Renaissance Man replied: "It's all tied to your social security number. Business doesn't matter.Before you do ANYTHING listen to this. Scroll down and click "Listen to Dave". JUST LISTEN.This one audio clip of his CHANGED MY LIFE when I heard it.Listen to this man for free, on the radio or online. This is like getting financial wisdom from Bill Gates except this guy has a national radio show."

  iao y replied: "Before applying for a small business credit card that fulfills your needs, shop around. Search online or contact the different card companies to find out the fees and the interest rates. Select the one, which has the lowest fees as well as interest rates.Just like a credit card for personal use, be smart with using your small business credit card. If not used judiciously, it can land you in debt problem.A small business credit card is a big help for small business owners if used sensibly. It can solve the financial problems that the small businesses face."

  Sharon F replied: "the real answer is that you probably wontbusiness credit cards must still be guaranteed by the owner's personal crediton every application that you come across they will be asking for the owners ss# and there is no way around it"

  Initial Underwriting Group replied: "We are often asked why it is important to build a strong business image and credit. There are two answers to that question. The first and the most obvious answer is that it is important to build strong business credit in order to Secure Business Financing. However, not all businesses require external financing; often entrepreneurs will refer to family and friends for startup capital. This is where the second reason, Emergency Financing takes precedence. If your business is experiencing strong growth such as a need to expand warehouse space, inventory, or work force, and the financing of such operation is beyond that which is available from friends and family, a strong business image and a strong business credit profile can aide in securing financing with lower rates and quicker approval times.Begin your search online by typing "strong business credit" (just like that in quotes) into google or yahoo. That should give you a head start on the programs that are out there.Ilya BodnerSmall Business OwnerInitial Underwriting Group"

  Jenny A asked: "I have a business credit card that will charge off soon and I can't do anything about it. What can I do to protect what little income I have from being taken by the creditor? Can they just confiscate everything I own when it's a business card? I still need to have operating cash to keep a roof over my head. I know a business card is different than a personal card, but I don't know what my legal rights are at this point."

  Question posted courtesy of:

  enigmatic_metamorphosis replied: "They can't take anything without going to court. Talk to your local chamber of commerce or small business association (sba.org) to get some free mentoring and help."

  polarcycle replied: "I dont know much about this, but i would see if you can settle with the lender for a lower price than what is owed."

  dakeen forx asked: "I have $30,000 and think to get business credit card. What is the average credit limit on a business credit card? What information will I need to provide?"

  Question posted courtesy of:

  thikingdomcome replied: "It deepends on the size of the business, Your status (wether you are a dba, a corperate company, an llc, etc.), and you businesses average income, your credit history (if it is a dba), or the credit history of the business. You will need to provide your personal information, the businesses info (including the tin #) and proof that you are a owner. Good Luck!"

  gatorboi19884870 replied: "First of all you can lend me like $800.00 and you'll be okay. But your credit limit depends on you credit. If you use American Express that darn Charge card, then you are going to get something like No credit limit which looks bad on your credit score. So You might wonna go with so mething that is around $20,000. If any thing goes wrong and you are suddenly out of work or you have to shut your business then you that that thirty that you are saving and stick it on the credit card balance. Remember you won't go over tweny. You will need to provide work history, SSN, and amount you have in savings. If you have a checking account then that will also be helpful."

  Jeremy replied: "Several different items are considered when applying for any credit card. Depending on the size of the business, your credit history and even if you have other accounts with the bank your applying for will determine how much credit you receive. One of the nice features about a business card is that you can have a large collective credit line on the primary card and add people to the account as users and assign a specified line for each one."

  markus878821 replied: "Take a look at this information page it lists types of cards and information, it should also answer your question."