Name Year Division Roll No.

Subject Topic

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Dhiram Kotadia TYBcom C 345 Computer Systems and Application Working of Credit Card

What is a Credit Card?

A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services. The issuer of the card creates a revolving account and grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user. A credit card is different from a charge card: a charge card requires the balance to be paid in full each month. In contrast, credit cards allow the consumers a continuing balance of debt, subject to interest being charged. A credit card also differs from a cash card, which can be used like currency by the owner of the card. Most credit cards are issued by banks or credit unions, and are the shape and size specified by the ISO/IEC 7810 standard as ID-1. This is defined as 85.60 53.98 mm (3.370 2.125 in) (33/8 21/8 in) in size. Credit cards are issued by a credit card issuer, such as a bank or credit union, after an account has been approved by the credit provider, after which cardholders can use it to make purchases at merchants accepting that card. Merchants often advertise which cards they accept by displaying acceptance marks generally derived from logos or may communicate this orally, as in "We take (brands X, Y, and Z)" or "We don't take credit cards".

History of Credit Cards

Credit is a method of selling goods or services without the buyer having cash in hand. A credit card is only an automatic way of offering credit to a consumer. Today, every credit card carries an identifying number that speeds shopping transactions. Imagine what a credit purchase would be like without it, the sales person would have to record your identity, billing address, and terms of repayment. According to Encyclopedia Britannica, "the use of credit cards originated in the United States during the 1920s, when individual firms, such as oil companies and hotel chains, began issuing them to customers." However, references to credit cards have been made as far back as 1890 in Europe. Early credit cards involved sales directly between the merchant offering the credit and credit card, and that merchant's customer. Around 1938, companies started to accept each other's cards. Today, credit cards allow you to make purchases with countless third parties. .

First Bank Credit Card

The inventor of the first bank issued credit card was John Biggins of the Flatbush National Bank of Brooklyn in New York. In 1946, Biggins invented the "Charge-It" program between bank customers and local merchants. Merchants could deposit sales slips into the bank and the bank billed the customer who used the card.

Numbers on the Credit Card

Electronically, a credit card is a pretty complex device. Everything on a credit card is a code that stands for a specific bit of information. And theres a ton of it some that you can see, some thats hidden. On the face of it, youll find a series of numbers. While these numbers as a group, identify you, individually they identify the financial institution you deal with the one that issued you the card. Almost all credit card companies use a standardized system for tracking and billing their customers transactions. Since there are so many financial institutions using this system, to avoid confusion between credit card companies, the numbers on your credit card identify which institution owns each transaction. For example, the first few digits identify the financial institution, the next few are your account number, and the last digit is whats called a check digit. A check digit is an interesting security item. The process of checking your credit card number is done by multiplying the sum of the odd digits by 3, which is then added to the sum of the even digits which, when added to the check digit, will equal a multiple of 10.

Swiping the Card

Were sure youve noticed the shiny black stripe on the back of your credit card. Thats the part thats read when you swipe your card. And the reason you swipe your card is to send the information embedded in that stripe to the central tracking and billing system.. Each stripe is made up of several tracks full of microscopic magnetic particles. These particles can be formatted to represent certain information. You might be surprised that half your life history is on that stripe. Well, maybe not that much, but theres definitely a lot about you in those strategically-placed little magnets. For example, one of those tracks holds your PIN, your country code, including its form of currency, and the amount that youve been authorized to spend. The machine that reads all this information is called a Magstripe reader. Have you ever swiped your card and it hasnt worked? Most often, a quick second swipe solves the problem. However, sometimes your card can become de-magnetized by bringing it into contact with another magnet; or it can be scratched. If these things happen, those little magnets can get moved, which destroys the code and renders your card invalid. Itll have to be replaced.

Working of Credit Card

When a purchase is made, the credit card user agrees to pay the card issuer. The cardholder indicates 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 not present transaction (CNP). Electronic verification systems allow merchants to verify in a few seconds that the card is valid and the credit card customer has sufficient credit to cover the purchase, 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 called Chip and PIN in the United Kingdom and Ireland, and is implemented as an EMV card. For card not present transactions where the card is not shown (e.g., e-commerce, mail order, and telephone sales), merchants additionally verify that the customer is in physical possession of the card and is the authorized user by asking for additional information such as the security code printed on the back of the card, date of expiry, and billing address. 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 15 U.S.C. 1643, which limits cardholder liability for unauthorized use of a credit card to $50, and the 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 issuer charges interest on the amount owed if the balance is not paid in full (typically at a much higher rate than most other forms of debt). In addition, if the credit card user fails to make at least the minimum payment by the due date, the issuer may impose a "late fee" and/or other penalties on the user. To help mitigate this, some financial institutions can arrange for automatic payments to be deducted from the user's bank accounts, thus avoiding such penalties altogether as long as the cardholder has sufficient funds.

The Popularity of Credit Cards

Credit cards were first promoted to traveling salesmen (more common in that era) for use on the road. By the early 1960s, more companies offered credit cards, advertising them as a time-saving device rather than a form of credit. American Express and MasterCard became huge successes overnight. By the mid-'70s, the U.S. Congress begin regulating the credit card industry by banning such practices as the mass mailing of active credit cards to those who had not requested them. However, not all regulations have been as consumer friendly. In 1996, the U.S. Supreme Court in Smiley vs. Citibank lifted restrictions on the amount of late penalty fees a credit card company could charge. Deregulation has also allowed very high interest rates to be charged A credit card is a very useful tool when youre shopping if you use it wisely. When you have a credit card, you can satisfy that craving for instant gratification. And you wont have to pay for it right away. But remember you will have to pay for it eventually. You dont want your credit report to be filled up with late payments. That could ruin your financial life. So be a smart shopper. Online shopping is the wave of the future. Online merchants have made it as easy as possible for you to spend your money. You surf the Internet and come across something youve always wanted. And its at such a great price! So go ahead buy it. And you dont need to worry about security on the Internet these days. Highly-secure firewall protection is being used by most online merchants. Your information will be protected. And if, by the smallest of chances, an advanced hacker does get your information, your credit card provider will only hold you liable for $50 worth of unauthorized purchases. So join the new age of shopping go cyber-shopping. Just think sitting at home, at your computer, in any state of dress or undress you choose, saving money on gas and car maintenance, avoiding driving and parking hassles. Wow! This is the life! If you are ready to start shopping online, and are ready for a credit card, check your credit score and if there is a problem, consider getting advice from a professional who can "fix my credit now" so you can get approved. If your credit is good, get out your credit card, get on the Internet, and go shopping!