What is a credit card?
A credit card is a thin rectangular piece of plastic or metal issued by financial institutions, which allows you to spend money from a pre-approved limit to pay for your transactions at both online and offline merchants. The card issuing institution determines the limit, based on your profile, income and credit history.
How does a credit card work?
In the credit cards chain, the most important link is the consumer ie you. Accordingly, it is so essential to be fully informed about all facets surrounding card selection & usage, and we will subsequently touch on these aspects. It is, however, equally important to be somewhat familiar with ‘what lies beneath’.
Apart from the card holder, there are four principal actors in the value chain.
1. Issuing Banks: Almost all banks (and recently, a few neobanks) issue credit cards. From a banking perspective, this is the start of the customer life-cycle.
2. Payment Processing Networks: Connect the banks / merchants / customers and enable a seamless settlement of transactions, examples include Visa, Mastercard, Diners, RuPay. Their core competence lies in efficiently maintaining & operating an enabling technical capability on a 24 × 7 basis, at a global scale.
3. Merchants: Hotels, airlines, malls, online purchase, fuel pumps, and all such points where you would use the card. The acquiring bank installs an electronic data capture (EDC) machine at these outlets. When you make a purchase, the merchant swipes your plastic and receives real-time authorization to complete the transaction.
4. Acquiring Banks: Place their EDC machines at points of sale ie with merchants. It is possible that you would use a HDFC card (issuer) at an outlet which has an Axis Bank (acquirer) EDC machine. The switching is facilitated by a network, say Visa. This holds true for domestic or international transactions. The acquiring bank is the entity which ensures the merchant receives his dues in accordance with a pre-set timetable.
How to use a credit card wisely and make maximum profits?
With scores of credit card companies vying for attention in one of the largest consumer markets in the world, choosing a card suitable for your needs can be daunting. From SBI to HDFC and Citibank to HSBC, each card issuer has its very own list of benefits and value back offers. Knowledgeable navigation is therefore a perplexing journey.
For explicit details, do check out our detailed guide on how to use credit a card.
How To Get A Credit Card For The First Time?
Introducing a credit card in your wallet can be financially liberating. With pre-approved credit limits, 40-50 days of interest free credit and value added benefits on transactions such as cashbacks, rewards etc., there are multifarious perks of owning a credit card.
For explicit details, please read on how to get a credit card for the first time.