A credit card is a facility given by the bank, which allows you to spend money first and repay it later. You can pay online or offline with a credit card. Do You Know How Your Credit Card Works? Let’s try to find the answer to this question.
On what basis do banks offer credit cards?
It is actually a contract of transaction between two parties. When you apply to get a credit card, the bank checks what is your ability to borrow and repay it.
If you are able to repay the loan amount after taking the loan from the bank, then only the bank issues you a credit card. You actually borrow money from the card-issuing bank by spending the amount on the credit card, which you have to repay within the stipulated time.
60 days to repay the money
If you do not pay the credit card bill on time, then you have to pay a fine on it. At the end of every billing cycle, you must pay the minimum bill amount. Between the credit card bill generated and the purchase, you get a loan-free period of 50-60 days.
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 you get a deposit of interest. Many times there is a late payment on the outstanding amount and also on the finance charge.
- Merchant or Seller: They use point of sale (POS) terminals. At this terminal, customers swipe the card and pay to the merchant.
- Payment Gateway: This is the online version of POS. If you do online shopping or bill payment, then you pay only through the payment gateway. This authorizes your payment in online shopping. (PayU Money or Very Sign etc.) Payee: This is the bank or NBFC which pays the merchant against the payment made by credit card. The POS terminal provides only the receiving institution.
- Association or network: The payment processing network actually completes all the formalities related to the process of payment made by credit card. This includes the process, authorization, and collection of payments. Weise, MasterCard, American Express, etc. are such networks.
- Payment processors: It is the process of collecting all the data and sending it to the network. First, it identifies the correct network. For this, the first four and last four digits of the credit card are useful.