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 (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 business accepting credit card payments f
  
  
  kenan gaoge asked: "That credit card you always use for shopping or paying something you thought you may need can bring you a lot of advantages if you know how to ask for it and what to chose. What are the Methods To Arrange The Best Credit Card Deals?"

  Question posted courtesy of:

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

  moviegoer_j replied: "The short answer is the use the calculator tool at to determine the best rewards card(s) for your spending profile. For more details, read on...Here are the strategies I suspect are most universally applicable.Best Single CardBecause most people spend quite a bit on gas, groceries, and drugs (i.e. "EDP" (Every Day Purchases)) and there are several cards that offer 5%+ on EDP, usually a card that offers a 5%+ on EDP and 1%+ on non-EDP will be the single best card. Examples of such cards are the Driver's Edge (6% on EDP for the first year), AmEx Blue Cash (5% on EDP after $6500 YTD spending), and Citi Diamond Preferred Rewards (basically 5% (in ThankYou points) on EDP for first year).Two-Card StrategyFor someone who's willing to manage two cards, usually the best card to supplement the 5%+ EDP card will be a card that pays 1.5%+ on *all purchases*. For example, the 1.5% Fidelity Visa card.Three-Card StrategyIf you're willing to manage three cards, then the third card to add to your portfolio will depend on the categories in which you spend the most money. Well, really that's true for even the first and second cards, but the advice I've given up 'til now is *often* optimal, but not always -- it always depends on your spending profile.Anyway, if you spend a lot at restaurants, then you'll probably want something like the Citi Professional card which pays 3% back at restaurants. If you spend a lot on utilities (and can do so through your credit card), then you might want to check out the Citi Home Rebate card (6% on utilities for the first 12 months). If you spend a lot on home improvement, the Chase Home Improvement Rewards card pays 3% back on home improvement. If you travel a lot, there are other good cards. If you spend a lot on office supplies, other choices. If you spend a lot on internet/web/advertising, still other options. And the list goes on.Optimal N-Card StrategyFiguring out the optimal 1 card, 2 cards, 3 cards, etc. for your spending profile actually requires a lot of research and math. The calculator tool at "Credit Card Tune-Up: Maximize Your Cash Back Rewards" ( ) will do the number crunching for you. It'll estimate your earnings from the best 1 card, best 2 cards, best 3 cards, etc. Then you can decide on the "sweet spot" for the rewards/hassle tradeoff."

  shahab a replied: "This website determines that for you"

  mscollegeteacher asked: "Are the good resources that tell you about the best unsecured credit card offers. I need to consolidate down from higher interest cards, but all I know is the sollicitations that I get in the mail. How do I research the best options? My credit rating is good."

  Question posted courtesy of:

  Deanna H replied: "There are many options for credit cards for you. Since your credit rating is good, I assume you do not have problems going into debt. Those that do prefer to use pre-paid or secured credit cards (so they can't go into debt). If you are a responsible user, you need to determine what kind of a card you want. Do you want to earn rewards? Do you want to use a business card? When you're searching, be sure to compare interest rates, especially after the 6-9 mark (some rate sky-rocket after this). Good luck."

  Anjell replied: "Right now Capital One is promoting a low rate card. Check it outVisa and Mastercard always have promotional rates. Just stay away from the 3-6 months intro's. See if you can lock into that rate for good."

  KnowItAll replied: "The best one I found that helped me the most is listed below. They have consolidated credit card offers along with useful articles. I always suggest this site because it helped me quite a bit in the past. See if you find good deals that you'll like..."

  hdawn1977 replied: "This site has alot of great cards to choose from. You can also narrow down your search to "balance tranfer" if you want. Just browse and see which company is offering you the best terms."

  olivia v asked: "your employer to deposit your paycheck into? One in particular is Account Now Visa. My credit is worse than abysmal, liens, judgements, defaults, etc. I'd like to find out about some reputable credit card companies who don't exploit consumers in my situation."

  Question posted courtesy of:

  relaxation05 replied: "years back i had prepaid credit card with the rush card and it was pretty good"

  JoyB replied: "There is one called Green Dot. You can purchase and load the card. It looks like a visa. Another is the Rush card Not sure if you can use it for car rentals, as they're not drawn from your bank account, but for anything else they function just like a regular card.Best wishes"

  Smiley asked: "Also, where's the best place in Germany to get a good exchange rate for changing US Dollars into Euros?"

  Question posted courtesy of:

  ascarta2 replied: "well I do know many credit card company's will add an additional fee every time you use a card out of the US, check with your company about this by calling there customer service line that is on the back of your card."

  nevsadnew replied: "The best way is to pay in cash or have traveller checks with you and exchange them at banks. With credit cards you pay at least 1% fee everytime you pay with them. Plus, in Germany, credit cards are often not accepted for smaller amounts of money....YES, there is often a minimum to spend on cards. And, some credit cards are less accepted than others...most accepted, I dare to say, is Mastercard. The less, I would say is Diners."

  Steve A replied: "I live in Germany. Eurocard marked EC on the card is the very best credit card and will pay for things without a fee. No credit card from the US is good as you will always get hit with a fee and you may get a bad exchange rate as well.Cash is best. Many smaller pensions, restaurants and such will not accept American credit cards. Some will only accept EC debit cards. Banks will change travellers checks for you - you can buy Euro-denominated travellers checks in the US. I bought some in Davenport, Iowa, so you should be able to get them where you are too, although the bank may ask you to wait a few days. Try to get the travellers checks at a bank you regularly use, AAA or some other organization that you belong to."

  kablink replied: "Some places won't take American credit cards, and travelers checks can be a bother, so I always used euros. I used my ATM card to get cash, there was a small fee from my bank, but it was still cheaper than exchanging dollars for euros."

  republicansarecruel replied: "Virtually everyplace we visited accepted our Master Card. The only places that didn't were places that sold smaller things or food stands. We are charged a 1% fee on all our purchases, but we make 2% back on all purchases, so it's a wash. Also, the cc companies get better exchange rates than the banks, hotels, or money exchange places. It's also unsafe to be walking around with large amounts of cash that you could lose or could be stolen.The best place to 'exchange' money is directly from a bank ATM. Call your bank before you leave to let them know you will be travelling and to get details from them. Then, use an ATM attached to an open bank and get money. I say "attached to an open bank" so that if there is any problem, you can immediately walk in to the bank and resolve it. We pay for everything that we can with a credit card when travelling in Europe. It is generally cheaper (1% is less than the 5-10% some exchange places charge) and safer."

  Jeannie asked: "im thinking of transferring my credit card balance to another card, what is currently the best deal, as far as a default of 20.0% APR or less? I have only seen a 32% APR on CITI bank for example but thats not a good deal in my book."

  Question posted courtesy of:

  humanresourcesman replied: "Don't transfer if you think you will default. If your credit qualifies you for a new card I recently got an offer from Capital One for zero percent interest until April 2007. Note; I don't like Capital One cuz years ago I had a disagreement with them so I did not apply."

  Private U replied: "Omaha National Bank has 0% on transfers for 6 months."

  john b replied: "My Chase offers me a 0% Apr balance transfer for 1 year, then 9% after that."

  Flicka replied: "20 and 32%?!?!? You are getting hosed!Try getting a 0-9% until paid off transfer.If you have bad credit, contact a good credit councilor."

  sobefobik replied: "I don't know an exact credit card but I would not transfer balances to another credit card unless it was 0%. If you have somewhat decent credit it's not hard to find a credit card that will offer that. They will often say 0% for one year and then it will change to a base percentage rate of for example: 10%"

  Kaylee replied: "wow those APRs are outrageous.... if you own your home. look into a home equity line of credit. If you have good credit you may be looking at prime rate. which i think is at 8.00% right now. There are alot of deals. But do shop around first."

  aheitzman replied: "Hi Jeannie,There are several great deals on balance transfer credit cards out there. Many of them offer a 0% rate on balance transfers. I would reccomend taking a look at a few a deciding which one fits you best. I found a link that compares a good amount of them.I hope this Helps!"

  traffic814 replied: "its citicard, they have good interest rates.try here to compare all of them."

  Tim replied: "check out discover.com 0% for a year or something like that."