The Basics About Credit Cards

A credit card is a plastic card issued to consumers by a credit provider or company who lends money after the account has been approved. The consumer or user will then be able to request a cash advance or use the card to purchase from establishments accepting credit card payments. A statement of account will be billed each month indicating your transaction records. Usually, it contains the list of purchases undertaken with the card, outstanding fees, the minimum balance, interest rates, due dates and other fees. Usually if the balance is paid in full, interest charges are waived.

New-style credit cards carry your name, account number and an expiry date.

How credit cards work

When the teller pushes your plastic card into a cash dispenser, a scanning device - an electromagnetic recording and erasing head - checks the dark brown strip on the underside. This strip is magnetic tape similar to that used in tape recorders and it carries three tracks holding up to 226 letters or numbers. One track gives your account number another gives your cash limit and the third checks if your PIN (personal identification number) is correct.

If you tap in the correct PIN on the keys, the dispenser, which is linked to the bank's computer, checks if the card is valid, if the cash has not exceeded the credit limit and if the card has not been reported lost or stolen. After all this information has been verified and the consumer has sufficient credit to cover the purchases, the amount to pay or ask for will be subtracted from the available balance in your account.

From the credit card machine, the details are fed to the credit card company's computer. It takes about 15 seconds to check if the card has not been reported lost or stolen and if you have not exceeded your credit limit.

This method of credit card processing is known as EftPos (electronic fund transfer at point of sale). It became available in 1988. EftPos systems include debit cards - bank cards that can be used for payment instead of cheques and which instantly debit the holder's bank account. Before electronic transfer was available, credit card details had to be checked by telephone if purchases cost more than a certain limit.

Choose the best

Credit card companies have different special offers to attract consumers. Some give low interest rates or charges, a longer grace period, balance transfer deals, free insurance, reward points and other attractive offers.

Before you make a decision, compare all the credit card offers then find the company that you think gives the best offer. Competition is so high that a lot of credit card companies offer the best just to be competitive.

Your choice of credit card should suit your needs and interest! If you plan to use your credit card regularly like weekly shopping and traveling, it is best to choose credit cards that offer rewards for those spending or where you can save money.

Although the offers sound good, you should not rush into an agreement. Take your time to study and compare then choose the best!

Security Measures

The electronic fund transfer system can cut down the amount of credit card fraud, because the computer can cancel further transactions immediately when a card loss is reported and will not accept a forged card.

However, credit card fraud is still hard to eliminate because of low security systems of credit card companies. The database of credit card companies can be hacked by computer-skilled persons who copy or steal credit card information. Online merchants usually use credit cards as the mode of payment; this is where the stolen credit card information is commonly used by hackers to pay for their online purchases.

When paying in a real store, somebody can secretly steal your credit card information so always keep an eye on your credit card. Not all stores use the latest technology scanning devices where you can slide your own credit card into the slot. Also don't forget to take your credit card receipt.

When shopping online, buy only on reputable sites. You may also choose Paypal and other online money transfer service instead of using your credit card.

Smart Cards

Magnetic strip cards are giving way to smart cards, which should make fraud even more difficult. Smart cards are cards that contain a miniature electronic brain. A Frenchman, Roland Moremo, invented them in 1974. By1988, nearly four million were in use in France and more were on trial in Britain and other parts of Europe, the USA and Japan.

The smart card's brain is a tiny, wafer-thin silicon chip and carries out its own checking. This chip carries a record of the cardholder's credit limit and contains details of previous transactions.

The counter terminal carries details of lost and stolen cards. If the card is reported lost or stolen, the transaction is automatically cancelled and the card neutralized to make sure it cannot be used again.

Although smart cards carry all the details of the cardholder's transactions, the cardholder has no way of consulting them, except at a special dispenser. The super-smart card overcomes this advantage. It looks like a solar-powered calculator and has a small display screen and keyboard on which the holder can check the transactions and the credit balance of his account.