credit cards

Understanding Credit Cards and Credit Card Transactions

A credit card is simply an organized payment system established by financial institutions in order to provide their clients with a means of paying for merchandize or services without having to have cash on hand or in a bank account. Credit cards are different from debit cards because they allow the cardholder to differ payment and don't withdraw funds from an account after each use. There are several forms of credit cards including consumer and business credit cards, charge cards and even secured credit cards (great for those wishing to establish credit for the first time or wishing to reestablish credit).

How do Credit Cards Work?

Three parties (actually four) participate in a credit card transaction. The person using the card (the consumer), the person selling the item or service (the merchant), and the financial institution that issued the card (which is actually two parties: the issuing bank as well as the credit card company itself; Visa, MasterCard, Discover, Amex, Diners Club International, etc..).

Modern day transactions are normally made through a digital point of sale systems which provide electronic verification and authorization instantly for all purchases being made with credit cards. Some merchants (especially in third world countries) still use old fashioned phone authorization slips with carbon paper Credit Card Receipts. The credit cards are passed through a machine that presses the paper against the numbers and they are carbon copied onto the receipt. Nowadays, Ecommerce has made it possible for credit cards to be used online and merchants don't need the physical card to accept payments. These are called CNP transactions: CNP being an acronym for Credit Cards Not Present.