Credit Card
In simple terms, the credit card is a small piece of plastic that easily fits in your wallet and acts as a substitute for cash. But that is really the definition of a layman. A credit card is actually a credit agreement between you (the person using the credit card) and the financial institution (which provides credit or to return the borrowed money (for expenses incurred by card credit) to the financial institution in accordance with the terms and conditions set forth in the agreement. In short, is an agreement between the lender and the borrower when the lender is the credit card company and the borrower is you.
The credit card application is actually the service agreement and has all the terms and conditions that apply to your credit card. Always read the terms and conditions carefully, especially those related to fees, interest rates or any sort of monetary charges. In general, credit card companies charge a small annual fee to provide this service to you.
The general eligibility criteria for acquiring a credit card is quite simple - you must be 18 years and have a regular source of income. However, the credit card company will check your credit history and ask you to provide references, etc. before qualifying him as eligible for a credit card from them. Your credit history is maintained by all financial institutions to give credit and that might already be using the services of one or more financial institutions in the form of a mortgage or loan. Credit history is just history repayment of credits taken from any financial institution.
How Credit Cards Work
Today credit cards have found widespread usage due to the convenience they offer. Unlike the old days, you do not have to carry large sums of money when you go shopping. All you need to do is take your credit card with you when you go out shopping, select whatever you want to buy, hand over your card to the cashier to make the payment and walk out with your purchase. Simple, isn't it? Card issuing banks offer many types of benefits like cash back, reward points, interest free credit and discount offers on purchases made at select stores. All this makes it attractive to use a credit card in lieu of cash for your purchases. If you are wondering, "What happens after I hand over my card to the cashier?", then read on to know more.
When you hand over your credit card to the cashier to pay for your purchases he takes it and swipes it in the merchant's point of sale (POS) system. This system is connected to the merchant's bank via a communication link. This POS system helps in verifying your data by using an electronic verification system. The details verified include the validity of your card and the availability of sufficient balance on your credit card to pay for the purchases.
Once your details are transmitted to the merchant's bank, they are sent to your bank which then authorizes the payment if all the details are in order. This authorization is then sent to the merchant's bank, which then blocks the amount from your credit limit so as to reimburse it to the merchant later on. The authorization generates an approval code and is transmitted to the merchant provider. This code has to be keyed in by the cashier, after which two copies of charge slip are generated. This charge slip is your agreement to pay your issuing bank the amount of purchase. You then sign one copy of the charge slip and take the other one with you, along with your purchase.
Just like you, there are many others who use credit cards for their purchases. They also generate their own charge slips. All these charge slips are stored in batches and submitted by the merchant to his bank, once a day at the end of the working day. But remember, the nature of the relationship of the merchant with his bank is far different from your relation with your bank. It is called a merchant account and is actually a line of credit rather than a regular account. As per this contract, the bank agrees to undertake collection of payments on behalf of the merchant from his customers' banks. These payments are credited to the merchant's bank accounts after deducting the fees for all the services involved.
How Much Cash Back Will You Receive
There are many factors that will go into how much cash back you will earn with your credit card. The most obvious ones are how much money you spend and how much money you spend in the card’s bonus categories, if applicable. You can see that not every cash back credit card will give the same cashback percentage rate. Most cards will list at least a basic outline of their cashback reward program in their details bullet list.
What some people may not realize is that not everyone will qualify for the same cashback rates. Like your interest rate, you only qualify for the best cashback rates if you have a good credit score. If your credit history is not great, you may not qualify for the best cash back credit cards. You might still get approved for a cash back credit card with a lower cashback rate. After paying your bill on time for a while, it is often worth calling your card issuer to request a cashback increase or apr decrease.