How Do Credit Cards Work?
You must have seen your parents use one of those plastic things called credit cards, and you may have thought about how a credit card works. You may have seen them shuffle through many more credit cards, just to find the perfect one they are looking for.
A credit card works in two ways – technical and financial.
How a Credit Card works Technically
Do you want to know how that plastic thingy also commonly known as a credit card works, right? Let’s take a look at it from a technical perspective first.
A credit card is a small card made from plastic. Most credits are 3-1/8 inches by 2-1/8 inches in dimension. A credit card includes information, such as the signature of the holder, or their picture, name of the person which the card is authorized to.
This information is instantly analyzed from ATMs, readers, and bank operating systems. Credit Cards hold a certain amount of balance. Suppose your credit card holds a balance of US $10,000. You can only use the amount you have as your balance. Each credit card is unique in its own way. Though credit cards are provided by hotels, gas companies, and almost everyone now days, the cards used nationally have unique codes on them.
Codes include system number, bank number, account number, and a check digit. The magnetic stripe or magstripe contains all of your information in barcodes. When the cashier runs your card in their reader, the magnetic stripes allow them to get your information. This will let them know your card is not exhausted. After you have inserted your pin, an automatically generated receipt is handed to you with details – a quick signature, and you are done.
Magnetic stripes can be damaged or erased and will not be approved valid if so.
How a Credit Card works Financially
So now that we are done with all the technical stuff, let us now talk about how a credit card works financially. Credit cards can be very tricky at times, and at times they can prove to be very useful. Using a credit card really just means that you are taking a temporary loan. This loan, however, has to be paid back within due time. The bank, which is lending you the money, will either charge you all at once or monthly. Now, a credit card comes in handy in difficult situations.
If there is an emergency, you can use the card for instant access to cash. It is better to have the card on hand than to be wondering here and there asking for financial aid. Credit cards are really simple, all you have to do is apply for one, receive one, use it, simply pay the bank back, and continue the same cycle. Do remember, these little do-hickeys can create a lot of trouble, like causing you to be in debt.
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