what is a credit card

What is a Credit Card? Definition, Uses and Eligibility

What is a credit card? Is this what you are interested in knowing? Have taken a lot of credit in life for work-qualification or experience or seen others take it. But this is not the credit for expressing your feelings.

This credit means the loan. And the loan of this card is called a credit card. Think of a credit card as a postpaid SIM. In postpaid SIM you’ll continue to spend the whole month, talk as much as you like or use the internet as you like, and pay the bill at the end of the month.

The same goes for credit cards. Cost as much as you like, shopping, bill-pay, or any other means and pay on time. If you know what a credit card is and how it works, you can tell the difference with a debit card.

What is a credit card?

A credit card is a plastic card issued to a customer by a bank or any other financial institution. Another name for it is payment card. It can be used for almost all types of payments. And this payment is given mainly from the bank fund which the customer gets mainly as a loan from the financial institution or bank. However, the customer has to repay this loan again.

The credit card holder has to meet certain conditions on behalf of the institution in order to take and repay this loan. These conditions include applicable interest, additional charges, monthly or time wise billing date etc. If the customer ever violates any of these conditions, his credit card is penalized.

History of credit card

The world’s first credit card was conceived by American writer, journalist and politician Edward Bellamy. He talks about the concept of using a credit card in his utopian novel Looking Backward.

However, its concept was primarily for citizens. Any citizen of the country will take a loan from the government and spend it through credit card and repay it at some point. As far as is known, financial institutions come up with credit cards using this concept of Edward Bellamy.

However, no one was able to develop this credit card financial system until 1958. Many financial institutions have tried this before but have not succeeded. Finally, in 1956, Bank of America was able to develop a credit system for the first time in Fresno and California, which was named BankAmericard and was the world’s first modern credit card.

Who can own a credit card?

No one can get a credit card if they want to, it takes eligibility. Credit cards are usually available to those who have a steady source of income. Be it through salary from a job or through income from business. In addition to income, in some cases you have to have an account with the bank from which you want to use the credit card.

How to get approved for a credit card?

If you want to get a credit card from any bank or financial institution in your country, the following things are required.

  1. National Identity Card.
  2. TIN Certificate.
  3. In case of employee appointment letter for salary certificate and 3 months bank statement.
  4. Trade license, Memorandum of Association and 3 months bank transaction statement for traders.

Also, the bank from which the customer wants to take the credit card may have to submit some additional paperwork as per the policy of the bank.

What is the credit limit on a credit card?

Although you can buy and sell on credit with a credit card, it has a range. And this range is called the credit limit. That is, the credit limit is the limit set by the bank for you to spend on credit.

You cannot spend more than this limit on anything. However, once the limit expires, if you repay it, you’ll get a new limit again. This credit limit mainly depends on the financial status, location and transaction of the customer.

The limit set for an ordinary employee is different in the case of a businessman. Because their financial situation is not the same. And depending on this situation, the maximum cost limit is determined.

In most cases the customer’s credit limit is set based on the amount of his monthly salary in the case of an employee and the amount of his transaction in the case of a businessman.

Credit limits are also known by more different names. E.g.-

  • Line of credit
  • Line of credit
  • Spending limit

How does the credit line limit work?

Every time you purchase or pay the bill, the amount decreases from the credit line limit. For example, if your credit limit is $50,000, and if you spend $15,000 on the first purchase, your card will have $35,000 credits.

That way, the more you spend, the lower it will be. If you spend all at one stage, you can buy more later. Because, your limit is over, and there is no chance to cross the limit.

Again, when you repay the credit to the bank within the stipulated time, you will again get a new limit of $50,000. This process is called the credit line limit.

What is a credit card number?

Credit or payment card number is the primary number given to the customer by the financial institution or bank. It is basically a customer’s unique identification number with which the customer’s card is identified.

Some credit card numbers are the same as bank card numbers. It is stored on bank documents or servers, as well as on the card given to the customer. This number is always 16 digits.

How does a credit card work?

The credit card is usually inserted into a card reader so that it can read security chips for small or any purchase price. In many cases the cardholder has to give the billing zip code.

When the card is swiped for purchase, the seller’s credit card terminal knocks on the bank’s or institution’s terminal to see if the card is valid and has sufficient credit. If there is, then it is done, and if not, then it is done.

In the case of online purchases, the customer has to provide his card number, expiry date and security code. Also, the name and billing address have to be given. After giving all the information, by clicking on the Bill Paying button, the automated system goes to the server of the concerned bank or card issuing institution and checks the validity of the information and the amount of money. And the bill is also transferred to the automatic system.

Want to know the benefits of a credit card?
Please read this article: Benefits of a Credit Card

Last word

With a credit card, the customer can buy and sell the loan with up to an amount specified by the organization. In this case, the purchase price of the customer is paid by his bank or financial institution which is accepted by the seller through card punch.

It is good or necessary for both the buyer and the seller. In today’s world of automation we may need credit cards. But, just as you need to know what credit card can be used for and what it doesn’t, you need to be aware of all its costs, both public and private.

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