October 23, 2021

How do credit cards work?

Credit cards work by giving each user a revolving credit , which is nothing more than an amount of borrowed money that can be used repeatedly as it is paid, and a plastic that serves as a means to access such a fund.

Plastic is used in the different establishments and businesses that accept this type of payment when purchasing goods or services, without the need to disburse cash. It all depends on the type of card obtained. The card also has a series of digits that are used to identify it and that are entered when making purchases in electronic commerce establishments.

The financial or bank entity that has issued the card, subsequently, is in charge of paying the commercial establishment the value of the purchase on behalf of its client. Subsequently, the amount of money owed by the cardholder must be paid to the financial institution, which may offer different deferred payment schemes with or without financing interest or even default interest . Learn how to calculate interest on a credit card .

The purchase or credit limit granted by said financial entity will be defined based on the income level, the payment capacity and the customer’s payment history with banks and other financing entities. The line of credit can increase little by little if the client makes his payments on time and in a responsible manner. This is known as the credit score .

Currently, there are also some prepaid credit cards where the plastic credit limit is defined based on the money deposited on it. That is, when all the money that is deposited in it has been spent, you will need to deposit money again to use it again.

Merchants that accept credit cards are affiliated with one or more transaction processing networks that operate around the world, such as MasterCard, Visa and American Express. The processing networks are in charge of processing each of the transactions carried out and guaranteeing the operation of credit cards in millions of establishments globally.

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