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Introduction

A credit card (also called charge card) is a payment card (typically a bank credit card) that enables its users to buy or service goods or services, or borrow cash, on credit. Through such use of the card will accrue a debt which must be paid back in the future. One of the most common modes of payment is the credit cards in most parts of the world.

A typical credit card is different to a charge card where the balance needs to be paid fully on a monthly basis, or rather on a statement cycle basis. By the contrary, credit cards enable consumers to accumulate the accumulating debt that can be charged with a certain interest rate. A credit card is also not like a charge card in that with credit card; the buyer is usually charged with a third party involved taking care of the seller, and repaid by the buyer later on at a later date; at the later date the charge card is just pushed forward to the buyer or deferred to a later or subsequent date. Credit card is also opposed to a debit card which can be utilized similarly to currency by the owner of the card.

As of June 2018, the world has 7.753 billion credit cards in it. As of 2020, 1.09 billion credit cards were in circulation in the United States and 72.5 percent of the adults (187.3 million) of the American population had at least one credit card.

Technical Specifications

Physical Design

Front Side Features:

Issuing bank logo
EMV chip (only on “smart cards”)
Hologram
Card number
Card network logo
Expiration date
Card holder name
EMV Contactless indicator

Back Side Features:

Magnetic stripe
Signature strip
Card security code

Size & Material:
Most credit cards will be 85.60 by 53.98 millimetres (3/8 in × 21/8 in) in size, and their rounded corners measuring 2.88 to 3.48 millimetres (9/80 in 11/80 in) in radius, to the ISO/IEC 7810 ID-1 standard, equal to ATM cards and other payment cards, including debit cards. Majority of the credit cards are produced of plastic, however, there are also credit cards produced by metals.

Numbering Standard

The bank card number on the credit cards is printed or embossed in accordance with the ISO/IEC 7812 numbering standard. The prefix of the card number, referred to as the Bank Identification Number (referred to within the industry as a BIN) is the series of digits at the start of the card number which identifies the bank to which the card number is attributed. It is the first six-digits with MasterCard and Visa cards. The following nine numbers are the account number of an individual followed by a check digit of validity.

Technology Standards

This is because both standards are upheld and extended by ISO/IEC JTC 1/SC 17/WG 1. Credit cards are a magnetic strip that abides by the ISO/IEC 7813. A majority of contemporary credit cards incorporate the smart card technology: they possess a computer chip inside them to provide the security. Besides, multi-purpose smart card with peripherals such as a display or fingerprint sensor represent another widely used type of credit cards.

Additional Features

Besides the main credit card number, credit cards bear issue and expiration dates (within the shortest possible month), plus additional codes as issue number, and security code. Advanced smart cards make it possible to have variable security code thereby enhancing security of online transactions. Not every credit card consists of identical additional codes and does not utilize the number of digits.

Initially the credit card numbers and the cardholder names were embossed, in order that it was easy to transfer such details to charge slips that were printed on pieces of carbon paper. With the decrease in the use of paper slips some credit cards are not embossed and actually the card number is not at the front anymore. Furthermore, there are now given some cards that are vertical, as opposed to horizontal.

History

Part of a series on Numismatics – the study of currency
Glossary • Currency • History of money • Production • Collection • Numismatics portal • Money portal.

Early Charge Coins and Cards

Charge cards started appearing in the late 19th century, in different shapes and sizes, in celluloid, copper, aluminum, and steel, and some other whitish metals. Others were in the form of a coin and a small hole was cut so that it could be inserted in a key ring. These charge coins were typically sold to those customers that were charged in the hotel or department stores. They were all charged by account number, the name of the merchant and a logo.

Charga-Plate (1930s–1950s)

In the 1930s to late 1950s, the Charga-Plate, an early credit card, was used in the United States as a simple and speedy device to transfer a charge account number to the sales slip, by inscribing the coin onto the sales slip. It was a 2½ by 1¼ inch (64mm x 32 mm) sheet metal rectangle which had similarity to addressograph and military dog tag systems. The name, city and the state of the customer were embossed. It had a little piece of paper in its back to sign. When making a purchase, the plate was placed in a recess in the imprinter and a paper charge slip placed over the plate. Documents of the transaction contained an impression of the embossed data, created by pushing an inked ribbon against charge slip by imprinter. Large-scale merchants gave Charga-Plates to their regular customers, similar to present-day departmental stores credit cards. There were instances where the plates were stored in the house issuing the products and not among the consumers. In case the purchase was made by an authorized user, a clerk retrieved the plate in the store files and processed the purchase. Charga-Plates also enhanced faster bookkeeping in the back-office as well as minimizing manual copy errors.

Air Travel Card (1934)

The American Airlines and the Air Transport Association made the process even easier in 1934, by introducing the Air Travel Card. They developed a system of numbers which named the sender of the card and customer account. That was why the contemporary UATP cards continue to begin with the figure 1. Under Air Travel Card, travellers were allowed to purchase a ticket now and pay later using their credit and save fifteen percent with any of the accepting airlines. By 1940s, the major American airlines were all offering Air Travel Cards which were compatible with 17 airlines. In 1941, the Air Travel Card agreement had contributed approximately a half of the airlines revenues. The airlines had also embarked on installment arrangement to attract new travellers to the airline. In 1948, the Air Travel Card was the first globally acceptable charge card in all the members of International Air Transport Association.

Pre-Early General Purpose Charge Card

In 1950, Ralph Schneider and Frank McNamara, the founders of Diners Club, extended the idea to customize the concept of customers paying different merchants with the same card, to centralize multiple cards. In 1994, the Diners Club that was formed as a combination of Dine and Sign, generated the first general purpose charge card and the whole bill had to be settled with each bill. This was succeeded by Carte Blanche and in 1958 by American Express who developed a global credit card system (also known as charge cards which subsequently developed the credit card capability).

BankAmericard and Master Charge

Until 1958, no-one had ever managed to set up a revolving credit financial system (where a card having any issuer besides the merchants had been issued by a third-party bank) which was generally accepted across a huge mass of merchants, as opposed to merchant-issued revolving cards which were only accepted by a small number of merchants. Small American banks had made a dozen attempts, but they had meager lives. Bank of America issued the BankAmericard in 1958 in Fresno, California, the first recognizably modern credit card successful one. This card managed to achieve success where others had not since it managed to overcome the chicken-and-egg situation where consumers did not want to use a card that the merchants would not accept and merchants did not want to use a card that consumers did not use. The reason why Bank of America selected Fresno was that 45 percent out of the population lived in Fresno and by sending a card to 60,000 citizens in Fresno simultaneously the bank could persuade the merchants to accept the card. It later was licensed to other banks across the United States and later throughout the globe and all BankAmericard licensees came together in one brand Visa in 1976. The lineage of MasterCard was born when a consortium of banks founded Master Charge to rival with BankAmericard in 1966; a considerable shot was given to it when Citibank acquired its own Everything Card, which it launched in 1967 and which entered in 1969 into another card, Master Charge.

The most notable example of early credit cards in the U.S. is that BankAmericard was created and mass-produced and mass-mailed as unsolicited debt cards to bank customers who were deemed low risk. Cards were mailed off to unemployable individuals, drunks, narcotics addicts and to compulsive debtors according to LIFE, which Betty Furness, Special Assistant to President Johnson, termed as giving sugar to diabetics. In banking terminology, these mass mailings were referred to as drops and they were banned in 1970 because of the havoc they left the financial world in. But when the legislation was passed the dropped number of credit cards had reached about 100 million in U.S. population. Since 1970, only credit card applications could be mailed in mass mailings unsolicited.

In 1973, led by Dee Hock, the first CEO of Visa, this system was computerized, which enabled less time to transact in it. Until always-connected payment terminals became common at the start of the 21st century, however, a lot of merchants accepted any charges, particularly less than a threshold value or known and trusted customers without paying attention to them over the phone. Merchants were provided with books containing lists of stolen card numbers, which they were anyway expected to consult before receiving them, and merge the signature on the charge slip with that on the card. Merchants, which never took the time to undertake the correct check up processes, could have committed fraudulent charges but due to the cumbersome process, the merchants usually bypassed some or all of the process and took the risks of smaller transactions.

The initial system in the United States of credit card was the case of regional monopoly. A number of historic anti-trust court cases have been instituted such as the case organized in 1978 by the Supreme Court called Marquette National Bank of Minneapolis v. First of Omaha Service Corp. was forced into significant changes that have rendered the credit card industry more competitive. In particular, a 2024 study estimated the beneficial effect of these competitive reforms on welfare, particularly the poor.

International Growth (Outside North America)

The disjointed character of the U.S. banking system regulation of the Glass-Steagall Act caused the credit cards to be a good alternative by which the people who were travelling across the country could shift their credit to regions to which they could not conveniently access their banking systems. The fundamental innovation of revolving credit to persons (as granted by banks and accepted by a system of financial institutions) now has infinite variations, such as organization brand credit cards, corporate user credit cards and store cards. In 1966, Barclaycard in the United Kingdom released its first credit card not in the United States.

Even though credit cards achieved very high adoption rates in U.S., Canada, the U.K., Australia and New Zealand in the second part of the 20th century, in many other cultures it was more cash-oriented or created different types of cashless paying systems, including Carte bleue or Eurocard (Germany, France, Switzerland and others). At such locations, credit card usage would first be far less prevalent. The stringent rules concerning bank overdrafts were such that some countries were far more prompt to create and embrace chip-based credit cards which are perceived as major anti-fraud credit mechanisms (France being one of those). In certain countries, debit cards, online banking, the use of ATMs, mobile banking, and installment plans have been more effective than credit cards. Having begun its expansion only in the 1990s, it was not until then that it could enjoy the lucrative percentage market penetration levels enjoyed in the U.S., Canada and the U.K. The adoption level in certain countries has been quite low since adoption of credit card system relies on banking system of each specific country; in other cases a country may be forced to innovate its own credit card system e.g. Barclaycard in U.K and Bankcard in Australia. Japan is a highly cash-based society and little of the merchants has embraced credit card adoption but some forms of alternative currencies like stored value cards (like telephone cards) are being exploited, but development is on RFID based systems within cards, cellphones and other objects.

Design and Collectibility

The very design of the credit card has become one of the greatest selling points itself. An emerging discipline of numismatics (study of money), or more precisely exonumia (study of money-like objects), credit card collectors strive to acquire diverse kinds of embodiment of credit between the commonplace plastic cards to older paper cards that were merchant credit cards, and even metal tokens that had been an accepted form of merchant credit card. First credit cards were of celluloid plastic, later metal and fiber, then paper and are almost entirely polyvinyl chloride (PVC) plastic. The electronic or chip part of credit cards is however fabricated using metals.

Cash Advance

The cash advance is a trade involving the use of the credit card, except that it does not involve buying an item. The process may occur via an ATM or at the counter in a bank or other financial agency and to a limited extent; in the case of a credit card, this will be the credit limit (or some percentage of it). High interest Cash advances are usually charged at 3 percent-5 percent of the sum borrowed. The interest charged when done on a credit card is usually high compared to other credit card dealings. Interest is accumulated on a daily basis apart from the borrowing day.

When one makes a credit-card purchase of products which are perceived as cash, it may be considered a cash advance per credit card network rules, and charged at the high interest rate plus the absence of the grace period. These are usually money orders, prepaid debit cards, lottery tickets and gaming chips, mobile payments and some payments made to various governments in the form of taxes and other charges. But in case the merchant fail to reveal the true nature of the transactions, it will be subjected to routine credit card transactions. Most of these merchants have increased the credit card processing fees to the credit card holders defying the guidelines of the credit card network, which avoids the credit card holders paying any additional fee in conducting a transaction using a credit card.

Even when the holder of a credit card cannot provide his PIN, a cash advance across the counter is obligatory to be issued to a credit card holder who offers an approved identification document to any bank that issues such a credit card.

In 2010, a law in Japan that allowed cash back of credit card was put in place. Though, this system had a loophole in the law that was soon used by online shops specialized in offering the cash back as a kind of easy loan at outrageous rates. Initially, the online shop offers one cheap product of glass marble, golf tee, or eraser at 80,000 yen wire transfer to making a 100,000 yield card payment admitted amounting to 1200 US dollar. With the online store out of the picture and no liability, fifty minutes after, the credit card provider charges the card owner with the full fee. The online cash back services, in effect, are loans that have an interest rate of 300 in a year. On 19 October 2010, Hideki Fukuba was the first operator of such online cash back service to be prosecuted by the police. He was accused of tax evasion with a 40 million yen of unpaid taxes.

Usage

Issuing and Acceptance

Issuing entities Visa, MasterCard and American Express are also issuing bodies that negotiate terms of transactions between merchants, card issuing banks and acquiring banks.
The issuer of credit cards would be a bank or credit union that enters into contracts with merchants to accept their credit cards. In signs and other company material that merchants put up, they frequently indicate in signs what types of cards they accept by placing acceptance marks usually based on logos. Or, this can be conveyed e.g. by a restaurant menu or the mouth and saying, we do not accept credit cards.

A credit card is issued by the credit card issuer to a customer upon or subsequent to an approved account by the credit provider which does not necessarily have to be the same credit card issuer. The cardholders can thereafter use it to shop at those merchants who are accepting that card. A purchase means that the cardholder would make payment to the card issuer. A cardholder will designate to pay by signing a receipt that contains a record of the card details and a reference to the amount to be paid or by passing a personal identification number (PIN). There is also a rising trend where a large number of merchants accept verbal authorizations through telephone and electronic authorization through the Internet, termed as a card-not-present transaction.

Verification and Authentication

With electronic verification systems, merchants are able to check a card in a matter of seconds that the card is valid and that the customer has enough credit in the card to cover the purchase, so the verification can occur at the point of purchase. The authentication is accomplished through credit card payment terminal or point of sale system by having communications connection with the acquiring bank of the merchant. The data on the card is read on either a magnetic stripe or a magnetic chip on the card: the latter system, known as chip and PIN in the United Kingdom and Ireland, is used as an EMV card.

In the case of card-not-present transactions (when the card is not shown by the customer e.g. in e-commerce or mail order), physical possession of the card and card is also verified by the merchant asking the customer to provide some extra information about the card (e.g. security code printed at the back of the card, card expiry date, and billing address).

Statements and Payments

The card holder is provided with a statement during each month which tells about the amount purchased using the card, any outstanding payment and the amount payable and minimum payment to be paid. U.S.- The cardholder has the right to challenge any billing in the U.S that is believed to be erroneous, including the liability on using a credit card unlawfully (up to an amount of 50 dollars regarding any liability though 15 U.S.C. SS 1643) after he receives the statement. The Fair credit billing act provides the information about the regulations in the U.S.

In addition, the option of the electronic statement is nowadays available in many banks in place of or along with physical statement, which can be accessed at any time by the cardholder through the online banking website of the issuer. The cardholder will usually get an email on notification of the availability of a new statement. The cardholder can also use other methods to make payments, rather than card issuing and physically present a check, such as an electronic transfer of money in a checking account. The card holder can also make multiple payments in one statement period, which may then allow him/her to use the credit limit on the card multiple times depending on who issues the card.

Credit Limit

The maximum value of revolving credit that a lender offers on a credit card or line of credit is considered the credit limit. The issuers of credit cards normally consider a number of factors when setting credit limits, as the main aspects of consideration include the credit score of the applicant, income, and existing debt obligations. Credit limit has a direct effect on purchasing power and percentage of credit-utilization by the cardholder.

The majority of large card issuers use tiered limit structures depending on creditworthiness – with applicants having above 740 FICO scores allowed to have above 10,000 limits, and many applicants having initial limits of between 300-1,000. The issuers usually conduct a review after some time and can give cardholders automatic credit line limits to the ones who utilize their accounts responsibly and make payments and keep utilization of less than 30 percent. The 2022 data by the Federal Reserve can demonstrate the correlation between credit scores and limits: the median limit was 7,100 with a prime borrower (FICO 680-739) and 1,500 with a subprime borrower (FICO below 620).

In 2022, the overall credit line capacity of all consumer credit cards issued in the United States amounted to more than $5 trillion with 80 percent of the available credit coming from prime and super-prime borrowers.

Minimum Payment

A cardholder will be required to pay a specified minimum of the amount owed by a certain date but can also be paid at a higher amount. The issuer of credits will impose interest on the balance, which has not been paid in full, on the billed amount (which is normally at a very high rate as compared to most other types of debts). The contribution of this effect is about 8 per cent of all interest paid. Therefore, the undesirable effects of default minimum payments could be attenuated by concealing the option of the minimum amount of payment to be made when making automatic and manual payments and emphasizing on total debt. More so, the issuer may charge a late fee or other punishment, in the event the card holder defaults with regard to paying at least the minimum terms due on a specified date. In a bid to curb this, certain financial institutions may make automatic payments be deducted in the bank account of a card holder, thereby not subjecting them to this kind of penalty at all, provided that the card holder has enough money.

Where minimum payment is lower than the finance charges and fees collected in the course of billing cycle then the balance will grow in bad charge known as negative amortization. This habit is likely to have the effect of amplifying credit risk and obscuring the quality of the portfolio held by the lender and has therefore been prohibited in the U.S. since 2003.

Advertising, Soliciting, Application and Approval

The regulations of credit card advertisement in the U.S. contain the regulations of the Schumer box of disclosure. The junk mail contains a big percentage of junk mail which is the credit card offers generated based on the list offered by the big credit rating agencies. The three key credit bureaus of the United States (Equifax, TransUnion and Experian) provide the option to a consumer to request non-consent in the associated credit card solicitation offers through its Opt Out Pre Screen program.

Interest Charges

The issuers of credit cards tend to give no interest charged in case the balance is paid at the end of every month, but in most cases, full interest on a complete balance is charged at the time of making a purchase on a credit card.

An illustration is given where one of the users had a transaction with a balance of 1,000 and paid the whole amount of the transaction in this grace period you would not pay any interest. Should, however, the sum of money, even the one hundred dollars of the entire sum, not be paid, interest will rest on the sum of one thousand dollars on the date when the purchase was made up to the time of payment. The exact methodology of how interest is calculated is normally specified in an agreement with the cardholder that can be recapped at the back of the monthly statement. The average formula that the majority of the financial institutions adopt to ascertain the interest that is bound to be charged is (APR/100 x ADB)/365 x days revolved. Divide the annual percentage rate (APR) by 100 and multiply it with the amount of the average daily balance (ADB). Divide this result by 365 and thereafter divide this amount with the total days in which the total amount was in circulation before repayment on the account was made. Financial institutions define an interest to be paid back to the time of the transaction and up to the time of payment (less than the full amount) of a payment, (also known as a residual retail finance charge RRFC). So, once a certain user has revolved a amount and made the payment, the card user will still have interest charges added to their statement after they have paid the subsequent statement (in fact, the statement might contain only a charge of the interest accrued up to the day the full balance was paid i.e., until the date that the balance has been rotating).

The credit card can either be a mere expression of revolving credit, or, can be a complex financial tool consisting of multiple balance segments at varying interest rates, some under a single umbrella credit limit, or, with different credit limits on the different segments of the balance. This compartmentalization is typically caused by special incentive offers on the part of the issuing bank, in order to stimulate the transfer of balances on cards by other issuers. In the event that multiple interest rates are charged on different balance segments, then payment will usually be subject to the will of the issuing bank, and payment will consequently generally be paid out at the lowest rate balances before a single penny is paid out on higher rate balances. Interest rates can differ significantly according to each card and the interest rate of a given card could explode at any time when the population in the card is late in a payment on that card or any other credit instrument or even in situations where the issuing bank decides to increase its revenues.

Grace Period

The grace period of a credit card is the period of time within which the credit card holder will pay the balance without incurring interest on that balance. The grace periods are sometimes a matter of variation but generally 20-55 days depending on the nature of credit card and the bank issuing the card. Certain policies have the option of being reinstated under some conditions. Generally in case a card holder does not pay the balance on time, the interest charges will be calculated and the grace period will not be applicable. The charge interest rates paid on finance will vary according to the grace period and balance; with the majority of credit cards it is charged in both the previous balance and new purchases (i.e. interest on previous balance as well as new purchases). Nonetheless, some credit cards will only impose finance charges on the existent or existing balance but not new transactions.

Parties Involved

Party	Description
Cardholder	The owner of the card that makes the purchase; the consumer. Does not charge fraudulent amounts on the credit cards US.
Card-issuing bank	The financial institution or other organization in which the cardholder was issued with the credit card. This bank charges the consumer with the repayment and has to incur the cost of loss that the card is misused.
Merchant	Business/person who takes up the payment made by credit card on goods or services to the owner of the card.
Acquiring bank	The bank that receives the money on behalf of the merchant and takes money on the products or services.
Independent sales organization	Re-sellers (to the merchants) of the acquiring bank services.
Merchant account	This may have the connotation of the acquiring bank or the independent sales organization though in general it means the organization whom the merchant transacts with.
Card association	An association of card-issuing banks like Discover, Visa, MasterCard, American Express that establish the terms of transactions of merchants, card-issuing banks and acquiring banks.
Transaction network	The component that makes electronic transactions work. May can be run by a separate company, and a company can run more than one network.
Affinity partner	Certain institutions will give their names to an issuer to entice customers particularly those with special affinity with that institution and obtain fees or even a percentage of the balance on each card sold under their name. Normal affinity partners are sporting groups, colleges, non-profit organizations, professional associations, and large retailers.
Insurance providers	The insurers providing credit card protection of assorted insurance cover; such as Car Rental Insurance, Purchase Security, Hotel Burglary Insurance and Travel Medical Protection.

This exchange of information and money between such sides, which is constantly provided by the stock exchange of cards, is called the exchange, and is comprised of several steps.

Transaction Steps

Authentication – The cardholder makes the payment by offering the card to the merchant and the merchant sends the transaction to the acquirer (acquiring bank). The acquirer validates the credit card number, the type and value of transaction in conjunction with the issuer (card-issuing bank) and notifies the merchant of the same as to a reservation in the credit limit of the cardholder. Code of approval will be produced and this will be the approval code and will be stored by the merchant along with the transaction.
Batching – Authorized transactions are placed in batches (sent to the acquirer). The submitted batches are usually at the end of the business day and once a day. The availability of batching may be manual (via the activity of a merchant) or automatic (via a preset timetable, via a payment processing platform). Unless they are made against a batch, a transaction will remain authorized to a specified duration before the issuer returns the amount being held against the cardholder as part of his available credit (see authorization hold). Another type of transaction can be submitted in the batch without prior authorizations; the transaction can either be one under the floor limit of the merchant or the authorization was not successful but the merchant still pushes through with the transaction. (This can be so in the event that the card holder is not present yet the merchant owes the card holder extra cash, e.g. in a hotel extension or in car rental)
Clearing and settlement – The batch transactions are given by the acquirer to the credit card association who debits those who issued them to be paid and credit the acquirer. In a nutshell, the issuer makes payments to the acquirer in regards to the transaction.
Funding – The acquirer pays the merchant after he/she has paid the acquirer. The amount received by the merchant will be the amount in the batch minus the “discount rate” or the mid-qualified rate or even the non qualified rate, which are levels on charges paid by the merchant to the acquirer to process transactions.
Chargebacks – A chargeback is something that transpires in the merchant account where hold of money is caused by a dispute on the transaction. The card owner usually initiates chargebacks. When there is a chargeback, the issuer gives back the transaction to the acquirer to be resolved. The acquirer thereafter submits the chargeback to the merchant with whom he has to either accept the chargeback or reject it.

Credit Card Register

A credit card register is a transaction register that is used to make sure the balance owed on using a credit card is low enough to handle authorization holds and payments that have not yet been received at the bank and to effortlessly search past transactions to reconcile them and by doing a budget.

The register is a database which is an individual record concerning banking transactions in purchasing credit card because it impacts the funds in the bank account or the available credit. Moreover, the code column displays the credit card in addition to checking numbers and so forth. The available funds after purchases are illustrated in the balance column. When payment is made using the credit card the balance already allows the money to be considered as spent. On the entry of a credit card, the deposit column displays the available credit and payment column displays the total owed the sum of which equals to the credit limit.

All the checks, payments via debit cards, notes withdrawals, and credit card payments are recorded manually in the paper register on a daily basis or on a few occasions weekly. Each credit card has one transaction record which is also known as credit card register. The booklets used in this case can easily be used to locate the available credit of a card when ten or more cards are being used.

Specialized Types

Business Credit Cards

The types of credit cards used in business are business credit cards whereby the cards are issued under the name of the registered business, and are normally restricted to business. Their application has increased over the past decades. An example happens in 1998 as a sub-sample of 37 percent of the small businesses had made use of a business credit card; in 2009, 64 percent of the businesses managed to do so.

Business credit cards have several business-oriented features. Their special rewards are on a frequent basis that includes shipping, office supplies, travel, and business technology. In the case of most issuers, personal credit score of the applicant is utilized to assess these applications. Moreover, the qualification can be done based on income through multiple sources, implying that new businesses could be eligible to own such cards as well in general. Moreover, not all issuers of this card will report account activity on the personal credit of the owner, or only in the case where the account is delinquent. In such opportunities, the business operations are disconnected to that of the owner.

The American Express, Discover and virtually all the large issuers of Visa and MasterCard cards are providing business credit cards. Aspiring business credit cards are also available in some of the local banks and credit unions.

Secured Credit Cards

A secured credit card is a kind of a credit card which is pledged by deposit account belonging to the cardholder. In most cases, the cardholder would be required to deposit 100-200 percent of the amount of credit requested. Therefore in case the cardholder deposits 1000 dollars, she or he will receive credit worth between 500 to 1000 dollars. In other instances companies who issue credit cards will give incentives even on the secured card portfolio. In such situations, the amount of deposit required can be very small compared to the amount of required credit limit and it can be as little as 10 percent of the targeted credit limit. This savings account is deposited in a special savings account. Issuers of credit cards provide this since they have realized that delinquencies were significantly decreased when the customer feels like there is something to lose should he or she fail to repay the balance.

The holder of a secured credit card still has to make regular payments like in a regular credit card, however, in case he/she defaults on a payment, the card issuer can opt to reclaim the experience of the purchases made to the merchants using the deposit. The benefit of the secured card to a person with a negative or no credit history is the fact that most companies submit periodically to the leading credit bureaus. This will enable the cardholder to begin to develop (or re-develop) a good credit record.

Even though the issuer of the credit card is holding the deposit as security against default by the consumer, it will not be debited because the consumer missed one or two payments as that will constitute default. The deposit is typically just employed as an offset when the account is closed upon request of the customer or a serious delinquency (150 to 180 days). This implies that a balance that is less than 150 days late will still attract an interest and charge, and it may end up in a balance which is significantly greater than the true amount of limit allowed on the card. Under such circumstances, the sum of debt can be much higher than the initial deposit and the cardholder is not only losing his deposit but he is also incurring more debt.

Most of these conditions are normally outlined in a cardholder agreement that is signed by a card holder upon opening an account.

There are secured credit cards, which enable an individual with a poor credit score or no credit history to be issued with a credit card that they would otherwise not have acquired. They are commonly marketed as a way of restoring the credit. Secured credit cards tend to attract higher fees and service charges in comparison with the fees and service charges charged on normal non-secured credit cards. In some cases (such as once charged off with other assets, or long history of delinquency with various types of debts), secured cards are nearly always costlier than non secured credit card.

In some cases, the equity in the residence of the borrower will be pledged with the credit card.

Prepaid Cards

They may be referred to as prepaid credit card, but they are a debit card (prepaid card or prepaid debit card), as no credit is provided by the card issuer: the cardholder is spending money which has been stored by a previous deposit by the cardholder or other person. But it is branded in credit-card format (as is Discover, Visa, MasterCard, American Express or JCB) and may be used similarly to a regular credit card. Contrary to the debit cards, prepaid credit cards usually do not have a PIN. An exception is an EMV chip prepaid credit card which would require the use of a PIN should the payment be made via Chip and PIN technology. By 2018, prepaid debit cards were the common type, with 71.7 percent of debit cards used in the U.S.

Once the card has been bought, the cardholder can add any amount of money to the card, to as much as the programmed card limit, and upon which the card is used to make purchases in the same way as any other credit card. The key benefit as against secured credit cards (see above section), is that the cardholder need not offer the money he/she needs to open an account. They also use prepaid credit cards where the purchasers are not charged any interest but rather charged a purchase fee as well as monthly fees after an arbitrary duration period along with numerous other charges.

To shop online with prepaid credit cards, teenagers are at times marketed the product without their parents making the transaction finalized. The ability of teenagers to access money on the card can only carry out financial management to minimize the possibility of having debt issues in the future.

The prepaid cards have the ability to be used worldwide. Payees in countries where international wire transfer, bank checks are time consuming, cumbersome and expensive will find the prepaid card convenient.

Since numerous charges are levied in the process of acquisition and utilization of credit-card branded prepaid cards, the Financial Consumer Agency of Canada outlines them as a costly method of stealing your own money. The agency has come up with a booklet that is titled Pre-paid Cards that explains the pros and cons of such prepaid card.

Digital Cards

A digital card will be an electronic stored cloud-based virtual model of any type of identification card or payment card, including a credit card.

Charge Cards

One of the credit card types is a charge card.

Benefits and Drawbacks

Benefits to Cardholder

Convenience – A credit card provides a capability to take small loans of temporary duration that can be quickly deposited on the card wherein the holder of the card does not need to compute a balance left still allowed to spend in a single transaction provided that the total amount of the charges are within the maximum credit limit of the card.
Interest-free grace period – The advantages that come with it in terms of finances are that there is no interest charged on the balance that is paid within the grace period. The United States has the majority of credit cards that have a grace period (ex. 21, 23 or 25days) on the purchases.
Consumer protection – The extent of protection in different countries varies. In the U.K. as an example, the bank will be held in joint responsibility with a merchant when purchasing flawed products worth more than £100.
Rewards and insurance – A lot of credit cards provide advantages to the cardholders. Certain benefits are provided whenever products are purchased using the card such as reimbursement of prices that have fallen on the same day (price protection), theft, or damage of the recently bought goods (purchase protection). Other advantages are provided in terms of the different types of travel insurance including; rental car insurance, travel accident insurance, baggage delay insurance, and trip delay or cancellation insurance.
Loyalty programs – It is also possible that credit cards can provide a loyalty program, where every purchase will be paid on the basis of price of purchase. Most of the times rewards are either cash Mary or points. The points are frequently redeemed to get a gift card or a good or even a travel cost such as airline ticket. There are credit cards which permits the conversion of earned points to hotel and airline loyalty programs.
Fraud liability limits – There are limits on the value of any sum that a consumer can be adjudged liable to in case of any fraudulent transactions an individual has committed using a lost or stolen credit card in some countries including United States, the United Kingdom, and France amongst others.

Detriments to Cardholders

High interest and bankruptcy risk – The introductory credit cards are charged low rates on a fixed period say 6 to 12 months, and then charged higher rates. Due to credit card fees and charges of interest, the result is some customers become too indebted to their credit card supplier that it prompts them to become bankrupt. In other cases, most credit cards usually charge a fee of 20 to 30 percent on a missed payment.
Universal default – It could be such that in certain instances universal default can be practiced: it is a high default rate on a card that is in good standing and in default by missing a payment on a different account with the same provider. This may become a snowball effect where the consumer will be overwhelmed by un-anticipated high-interest rates. More importantly, majority of the card holder contracts allow the issuer to change the interest rate arbitrarily at will. At one time First Premier Bank had a credit card that charged an interest rate of 79.9 percent; however they have ended the credit card in February 2011 due to the continuous defaulting.
Suboptimal choice – It has been found that a significant portion of people who buy credit cards (approximately 40 per cent) select a less-than-optimal credit card deal, and some of them end up paying hundreds of dollars of unnecessary interest payments to the company they chose.
Increased fraud risk – Credit card possession has other potential dangers (compared to other cashless payment options) like the increased risk of fraud, or unnecessarily assuming an additional liability.
Weakens self-regulation – Other researches have found out that consumers tend to use more money when they use the credit card to pay. According to the researchers, the actual pain of payment is abstract and experienced when individuals pay with the help of credit cards. In addition, the source of information has discovered that consumption of junk food can be enhanced by using credit cards rather than cash.

Detriments to Society

Inflated pricing for all consumers – Merchants accepting credit cards pay interchange fees and discount fees on every credit card transaction, but in other contexts cannot provide such fees to credit card customers plus they are not supposed to charge a minimum transaction value as stipulated in their credit agreements. What it leads to is that traders are encouraged to raise the prices of all customers (even those who do not use credit cards) to offset the costs of credit cards transactions. The inducement may be otherwise high since the fee of merchant is a percentage of the sales price that is a disproportionate impact on the profitability of firms that have a high proportion of credit card transactions unless leveled by increasing the prices in general. In 2008, credit card companies in the United States gouged the entire amount of interchange collection of 48 billion, or an average per family of 427, and the average of the fee rate is 2%.
Cross-subsidy – Credit card benefits lead to an overall payment of 1282 dollars annually to the average cash payer by the average card payer.

Benefits to Merchants

Increased sales – Card purchase amounts among merchants can be less resistant than cash payments, and, unlike other payment methods (such as checks), the method of payment is usually safer than other methods (including legitimate dispute resolution, which may impose a penalty back on the merchant). The cards are even safer than cash as they minimize the chances of theft as it minimizes the cash available in the facility. Lastly, credit cards will save the back office cost of processing checks/cash and taking them to the bank.
Credit risk transferred to banks – Before credit cards, every merchant would have to assess the credit history of the customers before offering them credit. The banks now do that imbarking them with the credit risk. The additional turnover is created by the fact that the consumer can always buy products and services on the spot without being stiled by the size of his pocket cash or the immediate position of his bank balance. A large portion of merchants is manufactured on this immediacy. In every purchasing action, the bank imposes on the merchant a service commission (discount fee), and there may exist some delay before the agreed upon payment is collected by the merchant. The commission can be either a percentage of the amount of the transaction itself, or a fixed fee (interchange rate).

Costs to Merchants

Transaction fees – There are a number of charges to the merchants to use the credit cards. The merchant is normally allowed to pay a charging fee of approximately 0.5-4 percent of the value of any transaction made through credit card usage. The merchant can also incur a variable fee that is known as a merchant discount rate per transaction. Crediting cards will cut the profit margin considerably or even lost on the transaction at very low-value transaction. Merchants whose average transaction prices are too low or merchants whose average transaction prices are too large are susceptible to taking credit cards. In other instances, the merchants are allowed to impose a credit card supplement payment (or surcharge) by credit card in form of a fixed charge or percentage to the user. It was against the law of most credit card contracts in the United States until 2013 when a big settlement agreement between merchants and credit card firms allowed merchants to charge surcharges. Among retailers, credit card surcharges are yet to be implemented even by most as they fear losing customers.
Legal and compliance costs – In United States, merchants are engaged in a series of legal suits since 2005 that are over allegedly unfairly high credit card company charges. In a class action suit against the National Retail Federation and large retailers like Wal-Mart, merchants accused the two dominant credit card processing institutions, MasterCard and Visa, of abusing their monopoly to impose high charges. A settlement payment of 5.7 billion was approved by a federal judge in December 2013 in the case that provided payouts to those merchants who had paid credit card charges, the biggest antitrust settlement payment in the history of the USA. Other large retailers, including Wal-Mart and Amazon, opted out of this settlement, but have carried on with their legal battle against the credit card companies.
Regulatory caps – In April at 2015 the EU regulated a maximum limit of interchange fee to be paid to the cardholder at 0.3 percent on consumer credit cards, and 0.2 percent on debit cards.
Equipment and security compliance – Merchants also need to lease/buy processing equipment though other processors offer this equipment at no cost. The merchants are also required to meet the standards of compliance with the terms of data security, which is highly technical and complicated. The delay varies between days, in most instances, it takes days before funds are put in the bank account of the merchant. The structure of credit card fees is highly complex, so the smaller merchants are disadvantaged to study and estimate them.
Chargebacks – Lastly there are chargebacks which are taken by the merchants.

Security

The credit card security is dependent on the physical security of the plastic card and the privacy of the credit card number. Hence, in cases where another individual accessing the card or its number other than the owner is involved, there is a risk of an intrusion into the security. In the past, the situation used to be quite frequent as merchants would receive credit card numbers without further verification to make a purchase by mail. The standard practice is now to only deliver to verified addresses due to security concern to limit fraudulent purchases. Others will also take a credit card number as long as it is used to make in store purchases, then access to the number is easy enough to commit fraud but most demand the card to be there and have to sign (with magnetic stripes cards). A card that has been lost or stolen can be cancelled and whenever this is done promptly will severely restrain the fraud which may otherwise be perpetrated in this manner. European banks have an option of requesting a cardholder to input his or her security PIN to make a face-to-face purchase using the card.

The security standard that is provided by the Payment Card Industry Security Standards Council (PCI SSC) is the Payment Card Industry Data Security Standard (PCI DSS). This standard of data security is acquired through banks to place cardholder data security on its merchants.

The credit card companies do not aim at eliminating fraud, but at bringing it to manageable levels. This means that the cost of fraud prevention measures will only be implemented when they are lower than the possible benefit of application of such measures and high cost and low returns measures will not be implemented – something one would anticipate of organizations whose aim is profit maximization.

Internet fraud can be perpetrated through assertion of an unwarranted chargeback (friendly fraud), or it can be perpetrated through the utilization of credit cards information which can be stolen in numerous ways, the easiest one being through copying the information in retailers both online and offline. Although security measures have been taken in an effort to enhance the security level of remote purchases made with credit cards, security breaches remained the problem most of the time, caused by ineffective practices of merchants. As an example, a site that securely transmits TLS encrypted card data to a client will in turn email the unmalaise data in the webserver to the merchant; or the merchant will save the unmalaise data in a style that allows them to be accessed over the Internet or by a rogue employee; unencrypted card data is never a holiday. Even coded information can be deciphered.