What Is a Credit Card And How It Work

What Is a Credit Card And How It Work

What Is a Credit Card And How It Work: Everybody is familiar with the cards issued by banks. These are called credit or debit cards. The use of these cards is on the rise now which is taking the world further on the path of creating a cashless economy. And the number of prepaid cards was 22.8 billion, which is expected to reach 29.31 billion by 2023. As of August 2021, the total number of credit cards alone is 2.8 billion. In addition, more than 1.01 billion credit card transactions are made worldwide every day. 1.06 billion credit cards are in circulation and 70% of the population use at least one credit card. There are currently around 1.8 million credit cards in Bangladesh and less than 1% of the total population use credit cards.

Bank cards are usually made of plastic and are issued by certain banks. In addition, some companies issue cards to their customers to provide various services related to financial transactions. Bank cards usually contain some other necessary information including customer name and unique card number. On one side of it there is a type of electronic chip from which the machines access the data.

Many of us are confused about the difference between a debit card and a credit card. A debit card is basically connected directly to a customer’s bank account so that he can make purchases from funds deposited in his bank account and withdraw money from ATM.

What Is a Credit Card

Credit cards, on the other hand, allow a cardholder to make payments up to his or her outstanding credit limit for purchasing products and services. He will have to pay again. Credit cards are much safer because credit card users are more likely to get refunds if they are deceived by e-commerce or other payments. As a result, a credit card user is much safer in online shopping or transactions.

Many credit cards also have dual currency facility so that a user can use his card for international payments. Also, credit card users often get extra discounts for shopping and payments. Many credit cards are pre- Install insurance facility is also included. If the user fails to repay his credit card loan before the last payment date, then interest is added on this loan.

According to Credit Card.com, the global average interest rate for October 2021 is 16.16 percent, which means that if a customer fails to pay his loan on time, he will have to repay the loan with additional interest and compound interest will be added every time the payment is made. There are some differences between network providers.

Most credit cards are issued by banks. However, there are a number of non-bank companies that issue credit cards. On the other hand, credit card network providers are usually different from bank card issuing companies. They mainly provide network infrastructure for credit card transactions.

How Credit Cards Work

Visa, MasterCard, Discover and American Express are the four major international credit cards and hold a large share of global credit cards. Visa is the world’s leading network provider with a market share of about 53 percent. Credit cards account for 31.6 percent, or 8.1 percent. With 7.5 percent market share, MasterCard, Discover and American Express are in second, third and fourth place, respectively. However, Discover and American Express are both credit card issuers and credit card network providers.

The credit card journey began in 1928, when The Charga-Plate was developed as a predecessor to the modern credit card. Introduces Air Travel Card to offer Buy Now and Pay letter benefits. In 1950, the two founders of Diners Club INTERNATIONAL introduced a card called the Charity Card for the first time to be used anywhere.

In 1956, Bank of America launched for the first time a universally accepted modern credit card called Bank America Card. In 1966 another card called Master Charge was launched to compete with the Bank America card, now known as MasterCard. In 1976 the Bank America card was renamed VISA. Magnetic strips were added to credit cards in the 1980s, and EMV Chip Technology was added to the cards in the 1990s.In this way credit cards have gradually changed to become the now known credit cards.

This is how credit cards work

The United States is currently the largest credit card holding state in the world. According to Shift Processing, 70 percent of Americans use at least one, 30 percent use at least three, and 14 percent use at least ten.Many people in the United States spend a lot before getting paid. However, people in China or other regions prefer to earn first and then spend accordingly.

According to Chinese villain Jack Marr, “American love to spend tomorrow’s money, and other people’s money, while we Chinese love to send money.”This is considered to be the main reason for the popularity of credit cards in America.

According to a Statista report, Canada topped the world in terms of credit card penetration by 2020. 8% of the country’s population owns one credit card each. Credit cards are comparatively higher in Japan, South Korea, England and Australia.

According to a 2020 report by The Financial Express, more than 16 million people in Bangladesh are using credit cards. However, the popularity of credit cards is constantly increasing in Bangladesh. By June 2021, the number of credit cards in the country has increased by 11 percent to over 1.5 million. Again, compared to 2020, credit card transactions have increased by 115 percent.

Information About Credit Cards

Credit card limits vary depending on the user. The limit refers to the maximum amount a user can spend using a credit card. In case of setting this limit in Bangladesh, the bank evaluates the monthly and annual income statement of the user. The Debt Burden Ratio (DBR) is also assessed to see how much the user owes, credit or loan. In addition to this, the user’s credit information bureau is collected from Bangladesh Bank.

What Is a Credit Card And How It Work: After evaluating all these information, the bank gives a credit score to the user. Based on which the credit limit is determined.This credit score also changes if you can pay on time. Those with higher scores are given higher credit limits. Similarly, those with lower scores have lower credit limits. Even if the score is low, some banks do not issue credit cards. He can also take credit cards against his fixed deposit. In this case, the bank does not evaluate any kind of credit score.

If at this time someone wants to make a purchase for which he will pay later, he can use the credit card. When using the card, the card information is sent to the bank through the card provider. Approved, however, the bank pays the merchant on behalf of the card user and deducts the same amount from the card’s remaining credit. Companies such as Visa, MasterCard, Discover and American Express provide the network infrastructure for this entire transaction.

Some Important Information About Credit Cards

What Is a Credit Card And How It Work: Each bank has a specific Billing Cycle Period. At the end of each Billing Cycle Period, the bank sends a letter to the cardholder asking him to repay his used credit amount within the stipulated time. This period is called Interest Free Period / Grace Period. The repayment period is usually 21 to 25 days, but some banks offer more than that. If the bank can refund the full amount within this grace period, the bank will not charge the user any interest. Statement balance, current balance, minimum from card bill. Due any one of these three can be paid.

Statement balance refers to the total amount spent using the card. The current balance is only the total amount spent by the user on the last billing cycle. Minimum due is the minimum amount determined by the bank authorities. This minimum amount must be paid. The remaining bill is added to the next billing cycle. However, in this case the user has to pay interest for the remaining amount.

Important Information About Credit Cards

The interest rate of credit card is much higher than other loans because the credit card provides loan to the user without any collateral. Much higher than the loan’s maximum interest rate of 9%.

What Is a Credit Card And How It Work: Usually banks or card issuers do not receive any interest against the credit card loan if they make the payment before the due date. But as soon as the grace period is over, interest charges start to accrue and the card issuer starts getting interest. Also, the bank charges a charge to the user for the credit card. Can Banks also generate revenue in various ways using credit cards, such as commission fees from shops or vendors, limit exit charges, interest on cash or ATM withdrawals, etc. This is why banks focus so much on increasing credit card users.

you can see latest job circular here. and this is official credit card website in bd.

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