How To Use Your Credit Card
The basic concept behind a credit card is very simple. When you use your credit card to pay for a product or service, you are effectively drawing out a loan from your bank, or the issuer of your credit card. As per standard terms and conditions, you are required to repay the loan upon receiving a credit card statement sent to you by the bank. Nonetheless, if you opt to only repay a partial amount of the loan, the bank will accordingly charge you an additional amount in interest on the balance amount. The credit card industry generally operates its business on the basis of this simple principle.
How Credit Card Transactions Generally Work
1. Using Your Credit Card: Upon receiving the product or services desired by you, you let the cash register clerk run your card through a credit card reader. If online, you simply enter your credit card details on the site’s checkout page.
2. Authorizing Your Purchase: The credit card reader (or online site) contacts your credit card issuer to validate the amount of your purchase. Assuming that all’s in order, your transaction gets validated and is accepted as formally authorized.
3. Releasing the Payment: Payment for your purchase is then released by your bank to the account provided by the concerned merchant.
4. Repaying Your Bank: The transaction amount of your purchase appears on your credit card statement. To close the transaction, you repay that amount to your bank.
Two Types Of Credit Card Rewards
Most well reputed credit card issuers offer rewards against spending on their credit cards. Such rewards customarily come in either one of these two reward types:
- Cash Back: Generally, cash back is a credit in your favor. Depending on the issuer bank’s T&Cs, you may either have the cash back deposited directly into your account or have a check sent to you for that amount.
- Points or Miles: You may have the points or miles awarded to you redeemed for travel purposes or for purchase of merchandise, gift items, or any other item of use. Similarly, as with your cash back rewards, you can likewise choose to redeem your points against a credit in your bank account.
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