How Does Your Credit Card Work?

A credit card is a facility provided by the bank to you, which allows you to spend money first and pay it later. You can pay online or offline with credit card.

Do you know how your credit card works? Let us try to know the answer to this question.

1. On what basis do banks give credit cards?

It is actually an agreement of transaction between two parties. When you apply for a credit card, the bank checks your borrowing and repayment capacity.

Banks issue credit cards to you only if you are able to repay the loan amount after taking it from the bank. By spending the money on the credit card, you actually borrow the amount from the card issuing bank, which you have to repay in a stipulated time.

2. 60 days to repay the money

If you do not pay the credit card bill on time, then you have to pay a penalty on it. You must pay the minimum bill amount at the end of each billing cycle. You get a debt free period of 50-60 days between the credit card bill generation and the purchase.

If you pay the full credit card bill on time, then you do not have to pay any penalty, your credit score also gets better. If you do not pay the credit card bill on time, then the interest amount accrues on you. Sometimes late payment is also levied on the outstanding amount and finance charges.

Party involved in the credit card

Merchant or Seller: They use Point of Sale (POS) terminals. At this terminal, customers swipe the card and pay the merchant.

Payment Gateway: This is the online version of POS. If you do online shopping or bill payment, then you pay through payment gateway only. This authorizes your payment for online purchases. (payu money or very sign etc.)

Payee: This is the bank or NBFC that pays the merchant against the credit card payment. The POS terminal is provided by the receiving institution itself.

Association or Network: The payment processing network actually completes all the formalities related to processing credit card payments. This includes tasks such as processing, authorizing and collecting payments. Visa, Mastercard, American Express etc. are such networks.

Payment Processors: This is the process of collecting all the data and sending it to the network. First of all, the correct network is identified in it. For this, the first four and last four digits of the credit card are useful.

What is its process?

When you swipe a credit card at a POS terminal, the first message is sent to the merchant through the network connection. After this a message is sent to the card issuing bank to authorize the payment.
After this, the card issuing bank sees whether such a loan amount is available in the customer’s account or not.

If the amount is available in the customer’s credit account, then the bank authorizes this transaction.
As soon as the transaction is authorized, the POS terminal displays the approval message and a slip is printed. The merchant deposits this slip in the bank account, after which the payment is received in his bank account.

Since there are many transactions in a day from a single POS terminal. You can also shop multiple times a day with your credit card. Accordingly, a transaction number is given to track every transaction. There is a fee for each party involved.

Leave a Comment