How Does a Credit Card Work? [Explained]

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how does a credit card work
How Does a Credit Card Work

Are you someone who thinks it too much trouble to carry around physical money? Or just out of whim or habit likes to pay by card? Do you also freak out when you can’t find your card? Yes? I get it. But hear me out. Have you never wondered how the bank settles all your extravagant expenses? In the show, How does a credit card work? How can that small piece of plastic contain all those heavy transactions?

As I have raised the question, I should be the one to answer it. So allow me to bequeath all. The article is sure to answer all the questions.

Brief Overview About Credit Cards

The caption is self-explanatory. We have become so dependent on cards that most of us have more than one each for a different purpose.

A small strip of plastic working around the digits carved on it, bringing about a bunch of benefits. From the ease of use to the rewards that come along and all in between. Despite having a card, did you ever try to know how does a credit card works? Yes? Great.

credit card
Credit Card

Those who say No, its about time you do that.

What goes behind those easy-peasy payments? I’m here to satiate the hunger for knowledge and bequeath all I know to you.

Understanding The Working Of A Credit Card

We’ll be getting around the main issue, which is how does a credit card work. When you go out to retail stores or to food outlets, you just use the card to pay for their services. Well, there isn’t any kind of sorcery there. Just technology. Enough of it to make it look like witchcraft though.

The machine where the card goes acts as an interface. An interface that connects you and the acquirer. The acquirer, you have to understand is the first step in the transaction. He is responsible for making the payment.

Then, after analyzing things to his satisfaction, he forwards the details to the issuer.

credit card working
Credit Card Working

That is what we can call the point of authorization. The issuer performs a variety of checks on the card. For instance, he counterchecks whether the card number is a registered one. If it is, then whether it has got enough balance. What is the credit limit, and things like that? Once he finds everything in order, he sends the acknowledgment to the acquirer. 

Along with that, he sends him the amount info, after taking out his own part. Then the acquirer sends the due to the rightful owner after cutting back what is his.

That describes how does credit card works. But it isn’t complete until we discuss interests. And what we owe to the bank and how it all works out. When we make payments bringing our card into use

All relevant To You | Interest, Dues And All Else

So the elephant in the room is ‘how does a credit card work.’ Let us begin with the basics.

Firstly what you need to know, your bank will provide a summary. That, on a monthly basis, usually. It contains two-three things. For instance, the grand total of monthly spendings. That includes the regular rate of interest that you agreed to pay. After your entry period has passed.

Secondly, it has a record of inflow or outflow of money. What went where and what came from where. Now, paying in lumpsum the money that the summary (bank statement) says is due. It would prevent you from anything additional.

interest rates
Interest Rates

It works to pay even a small agreed-upon amount. Water goes over your head when you skin paying altogether. That triggers trouble. Consequently, the cyclone of pending payments keeps sucking you in, and dues keep pilling one upon the other. 

Also, it is a good idea to pay timely. It helps in maintaining your credit score.

It is not that tricky to understand how does credit card works if you read it thoroughly. Also, you can’t spend more than the upper limit of the card. It goes on reducing as you keep on spending. But the bank reinstates it, once you pay off everything.

If we use common sense, clearing the whole amount, helps you go debt-less more quickly and cheaply. So why not?

Conclusion

These guidelines on ‘how does a credit card work’ can help you use them more wisely. For those who already possess one. When you know what you’re in for, if you don’t pay your dues, you tend to be extra cautious. For those who don’t, it is advisable you go through ‘how does a credit card work’ before you decide to go for one.

So read the article and use your resources rationally. We don’t want anyone to face any kind of trouble.

Stay tuned for more content!

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