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What are Credit Cards?

By: Michael Rupkalvis

Many individuals around the world take advantage of the benefits that credit cards have to offer. Most individuals in the United States make use of at least one credit card. Many have more than this. Apart from offering convenience in purchases, these nifty little pieces of plastic offer safe, secure transactions and limit the need to carry large amounts of cash. If you have been interested in obtaining a credit card, but would like to learn more about how they work, we will outline a simple history of the credit card, as well as the steps required in the credit card processing procedures.

Credit lines have been used all throughout history. Evidence of credit has been traced to the ancient Babylonians. The simple barter systems used by so many of our ancestors were types of credit lines. However, in the early 1900’s, a precursor of the credit card was created by numerous businesses in order to assist individuals with purchases that they were unable to afford outright. This continued until the 1950’s when the first true credit card was created by The Diners Club of America. A few years later, Americans were introduced to the ever-popular American Express.

As time progressed a few new credit cards (VISA, MasterCard and Discover) entered the market. These credit cards established the basis of the fees and charges that are associated with the credit cards of today. In addition to establishing guidelines for credit, a new system emerged. This system would allow stores and other businesses that sold products and services to individuals to receive almost immediate compensation for products that were sold using a credit card. This is what really got merchants rolling when it came to accepting various types of credit cards. The credit card company would simply pay the merchant for the purchase, and deal directly with the individual that made the purchase for repayment.

Credit card processing is a very simple process as far as you, the customer, is concerned. The merchant at the store at which you are making your purchase simply slides your credit card through a machine that reads it. It will add the amount of the purchase to your credit card balance. Immediately thereafter, you will be required to sign the credit card slip to approve the purchase, and all is done.

The following steps identify the key steps involved in the credit card processing procedure “behind the scenes”:

1) First, the credit card machine will read the magnetic strip that is on the back of the card.

2) Once the strip has been read, it will transmit electronically the information to the company that authorizes the request.

3) The authorization involves the bank that issued the credit card, as well as the credit card company.

4) It will be determined whether the individual has the funds necessary to make the request. If this is confirmed, then a deposit is made to the merchant’s bank.

5) Within a very short period of time, the purchase will be confirmed on the credit card account of the individual, who is responsible for payment of the charge, according to the terms of the bank that issued the customer the card..

The actual behind the scenes steps are a lot more detailed than outlined here, involving the merchant’s card processing company, the credit card company, the processing company and the customer’s bank that issued the credit card. A lot of software is involved, as well as computer programming, fraud prevention techniques and authorization procedures that take place instantaneously with the customer’s purchase.

But this invisible processing system is largely responsible for the seemingly endless growth of our economy.

Article Source: Main Articles

Michael Rupkalvis manages The Transaction Group website. The website discusses information on internet merchant accounts and offers merchants low fee internet merchant account solutions, along with excellent client support.

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