Credit cards

A credit card system is a type of retail transaction settlement and credit system, named after the small plastic card issued to users of the system. A credit card is different from a debit card in that the credit card issuer lends the consumer money rather than having the money removed from an account. It is also different from a charge card (though this name is often used to describe credit cards by the public) in that charge cards do not extend the user credit -- the charges must be paid each month in full. Most credit cards are the same shape and size, as specified by the ISO 7810 standard. Download high resolution version (1600x1200, 555 KB) Wikipedia does not have an article with this exact name. ... Download high resolution version (1600x1200, 555 KB) Wikipedia does not have an article with this exact name. ... In commerce, a retailer buys goods or products in large quantities from manufacturers or importers, either directly or through a wholesaler, and then sells individual items or small quantities to the general public or end user customers, usually in a shop, also called store. ... There are several variations of the meaning of the word credit, but they all relate to the central concepts of approval, praise, value, or confidence. ... The term plastics covers a range of synthetic or semi-synthetic polymerization products. ... This article needs cleanup. ... In economics, consumers are individuals or households that consume goods and services generated within the economy. ... Money is a marketable good or token that acts as a store of value, a medium of exchange and a unit of account. ... A charge card is similar to a credit card, except that the charges made to it must be paid-off each month, rather than having revolving credit which carries a balance forward. ... Standards for financial and identity cards are set out by ISO. All credit cards and debit cards, and most ID cards, are the same shape and size ID-1 as specified by the ISO 7810 standard: ID-1 = 85. ...

How they work

A credit card user is issued the card after approval from a provider (often a general bank, but sometimes from a captive bank created to issue a particular brand of credit card, such as (American Express Centurion Bank), in which they will be able to make purchases from merchants supporting that credit card up to a prenegotiated credit limit. When a purchase is made, the credit card user indicates his/her consent to pay, usually by signing a receipt with a record of the card details and indicating the amount to be paid. More recently, electronic verification systems have allowed merchants (using a strip of magnetized material on the card holding information in a similar manner to magnetic tape or a floppy disk) to verify that the card is valid and the credit card customer has sufficient credit to cover the purchase in a few seconds, allowing the verification to happen at time of purchase. Some services can be paid for over the telephone by credit card merely by quoting the number embossed onto the card (the credit card number), and they can be used in a similar manner to pay for purchases from online vendors. The essential function of a bank is to provide services related to the storing of value and the extending of credit. ... American Express (NYSE: AXP) is a diversified global financial services company headquartered in the United States. ... Merchants function as professional traders, dealing in commodities that they do not produce themselves. ... A receipt is a document made by a merchant, landlord, vendor, or other creditor in favor of a customer acknowledging having received an amount of money for some purpose. ... Look up Electronic in Wiktionary, the free dictionary Electronic can refer to many things: Objects related to electronics The band Electronic. ... CR80 ISO standard card, 2-3 stripes. ... Magnetic lines of force of a bar magnet shown by iron filings on paper A magnet is an object that has a magnetic field. ... Magnetic tape is an information storage medium consisting of a magnetisable coating on a thin plastic strip. ... A floppy disk is a data storage device that is composed of a circular piece of thin, flexible (i. ... A telephone handset A touch-tone telephone dial Telephone This article is about telephone technology. ... Embossing is the process of creating a three-dimensional image or design in paper. ... Electronic commerce or e-commerce consists of the buying, selling, marketing, and servicing of products or services over computer networks. ...

Each month, the credit card user is sent a statement indicating the purchases undertaken with the card, and the total amount owing. The cardholder must then pay a minimum proportion of the bill by a due date, and may choose to pay more or indeed pay the entire amount owing. The credit provider charges interest on the amount owing (typically at a much higher rate than most other forms of debt). Credit card issuers may waive interest charges if the balance is paid in full each month, which allows the credit card to serve as a form of revolving credit, or they may choose to apply any payments toward recent rather than previous debt. Interest rates can vary considerably from card to card, and the interest rate on a particular card may jump dramatically if the card user is late with a payment on that card or any other credit instrument. As the rates and terms vary, services have been set up allowing users to calculate savings available by switching card, which can be considerable if there is a large outstanding balance (see external links for some on-line services). Expiration (2003) is an independent feature film directed by Gavin Heffernan In respiration, expiration is initiated by a decrease in volume and positive pressure exerted upon the intrapleural space upon diaphragm relaxation. ... In finance, interest has three general definitions. ... Revolving credit can be any of the following: A credit agreement that allows consumers to pay all or part of the outstanding balance on a loan or credit card. ... An interest rate is the rental price of money. ...

Because profit margins in the credit card industry can be quite high, credit providers often offer incentives such as frequent flier miles, gift certificates, or cash back (typically 1 percent) to attract customers to their program. A Frequent Flyer Program is a service offered by many airlines to reward customer loyalty. ... Scrip is any substitute for currency, which is not legal tender. ...

Secured credit cards

A secured credit card is a special type of credit card in which you must first put down a deposit between 100% and 150% of the total amount of credit you desire. Thus if the holder puts down $1500, he or she will be given credit in the range of $1000–$1500. This deposit is held in a special savings account. The owner of the secured credit card is still expected to make regular payment, as he or she would with a regular credit card, but should he or she default on a payment, the card issuer can deduct payments on the card out of the deposit. Secure credit cards are an advantage to anyone with poor or no credit history. They are often offered to people as a means of rebuilding one's credit. Secured credit cards are available with both Visa and MasterCard logos on them. Savings deposits are accounts maintained by banks, savings and loan associations, credit unions, and mutual savings banks that pay interest but can not be used directly as money. ... Credit history is a record of an individuals or companys past borrowing and repaying. ... VISA is a brand of credit card operated by the VISA International Service Association of San Francisco, California, USA owned by 21,000 financial institutions that issues and markets its own Visa products. ... MasterCard Incorporated is a membership organization owned by the 25,000 financial institutions that issue its card. ... A logotype, commonly known as a logo, is the graphic element of a trademark or brand, which is set in a special typeface/font, or arranged in a particular, but legible, way. ...

Features

As well as convenient, accessible credit, the cards offer consumers an easy way to track expenses, which is necessary both for monitoring personal expenditures and the tracking of work-related expenses for taxation and reimbursement purposes. They have now spread worldwide, and are offered in a huge variety of permutations with differing credit limits, repayment arrangements (some cards offer interest-free periods, while others do not but compensate with much lower interest rates), and other perks (such as rewards schemes in which points "earned" for purchasing goods with the card can be reclaimed for further goods and services). In accounting, an expense is a general term for an outgoing payment made by a business or individual. ... In accounting, a good describes a physical product capable of being delivered to a purchaser and involves the transfer of ownership from seller to customer. ... Services are: plural of service Tertiary sector of industry IRC services Web services the name of a first-class cricket team in India This is a disambiguation page — a navigational aid which lists other pages that might otherwise share the same title. ...

In addition, some countries such as the United States limit the amount that a consumer can be held liable for fraudulent transactions, which shifts the liability to the merchant. This encourages the use of credit cards for electronic and mail order transactions, collectively called "card not present" transactions. For further security, some banks are offering one-time numbers for use in these transactions. They have spread far and wide beyond their initial market of the wealthy businessman and are now ubiquitous amongst the middle class of most Western countries. In the most general sense, a liability is anything that is a hinderance, or puts one at a disadvantage. ... Mail order is a term which describes the buying of goods or services by mail delivery. ... The middle class (or middle classes) comprises a social group once defined by exception as an intermediate social class between the nobility and the peasantry. ... For alternative meanings for The West in the United States, see the U.S. West and American West. ...

Security

The relatively low security of the credit card system presents many opportunities for fraud. However, this does not imply that the system is broken. The goal of the credit card companies is not to eliminate fraud, but to reduce it to manageable levels, such that the total cost of both fraud and fraud prevention is minimised. This implies that high-cost low-return fraud prevention measures will not be used if their cost exceeds the potential gains from fraud reduction. This opportunity for fraud has created a black market in stolen credit card numbers, which must generally be used quickly before the cards are reported stolen. The black market is the sector of economic activity involving illegal economic dealings, typically the buying and selling of merchandise illegally. ...

Three improvements to card security are being introduced to the more common credit card networks at the time of writing. First, the on-line verification system used by merchants is being enhanced to require a 4 digit Personal Identification Number (PIN) known only to the card holder, Second, the cards themselves are being replaced with similar-looking tamper-resistant smart cards which are intended to make forgery more difficult. The majority of smartcard (IC card) based credit cards comply with the EMV (Europay Visa MasterCard) standard. Third, an additional 3 or 4 digit code is now present on the back of most cards, for use in "card not present" transactions. See CVV2 for more information. A personal identification number (PIN) is a numeric value that is used in certain systems to gain access, and authenticate. ... A smartcard or smart card is a tiny secure cryptoprocessor embedded within a credit card-sized or smaller (like the GSM SIM) card. ... Forgery is the process of making or adapting objects or documents (see false document), with the intention to deceive (fraud is the use of objects obtained through forgery). ... Note: This article is about the standard for smart payment cards; EMV can also be an acronym for eyes, motor and verbal, the three dimensions of the Glasgow Coma Score. ... CVV2 (Card Verification Value) is an important security feature for credit card transactions on the Internet and over the phone. ...

Profits and losses

Credit card issuers (banks) cover their costs (including the interest costs for the money that is paid to merchants prior to the bank being paid by customers), and earn profits, by:

• The fee charged to the merchant that accepts the credit card. The merchant pays a fee that is typically 2 to 3 percent (this is negotiated), which is why some merchants prefer cash, debit cards, or even checks. The majority of this fee goes to the issuing bank, but parts of it go to the electronic data network, the card brand (Visa, MasterCard, etc.), and others involved in processing the transaction.

• Charging interest on outstanding balances. Customers who do not pay in full the amount owed on their monthly statement (the "balance") by the due date (that is, at the end of the "grace period") owe interest ("finance charges"). Those who pay in full (pay the entire balance) do not. Interest charges vary widely; there are "teaser" rates that are in effect for initial periods of time (as low as zero percent for, say, six months), whereas rates for those with poor credit can be as much as 20 percent (annualized). In the U.S. rules governing interest rates are set at the state level; some banks have chosen to establish their credit card operations in states such as North Dakota that have less restrictive regulations.

• Fees charged to customers. The major fees are for (1) payments received late (past the "grace period"); (2) charges that result in exceeding the credit limit on the card (whether done deliberately or by mistake); (3) cash advances and convenience checks (often 3 percent of the amount); and (4) transactions in a foreign currency (as much as 3 percent of the amount; a few financial institutions charge no fee for this).

Credit card companies generally do provide a guarantee the merchant will be paid on legitimate transactions regardless of whether the consumer pays their credit card bill. However, credit card companies generally will not pay a merchant if the consumer challenges the legitimacy of the transaction and will fine merchants who have a large number of chargebacks.

In recent times, credit card portfolios have been exceedingly profitable to banks, largely due to the booming economy of the late nineties. However in the case of credit cards, such high returns go hand in hand with risk, since the business is essentially one of making unsecured (uncollateralized) loans, and thus dependent on borrowers to not default in large numbers. In economics, the term boom and bust refers to the movement of an economy through economic cycles due to changes in aggregate demand. ...

In some areas, such as Ireland, governments profit from credit cards through the imposition of a stamp duty or credit card tax. This is usually done where a cheque tax previously existed. Stamp duty is a form of tax that is levied on documents. ... Typical cancelled personal cheque as used in the U.S. A cheque (British English) or check (American English), thought to have developed from Persian چك chek, is a negotiable instrument instructing a financial institution to pay a specific amount of a specific currency from a specific demand account held in...

History

The credit card was the successor of a variety of merchant credit schemes. The concept of paying merchants using a card was invented in 1950 with Diners Club's invention of the charge card, which is similar but required the entire bill to be paid with each statement; it was followed shortly thereafter by American Express. 1950 was a common year starting on Sunday (link will take you to calendar). ... Diners Club International, originally founded as Diners Club, was formed in 1950 by Frank X. McNamara, Ralph Schneider and Alfred Bloomingdale. ... A charge card is similar to a credit card, except that the charges made to it must be paid-off each month, rather than having revolving credit which carries a balance forward. ...

Bank of America created the BankAmericard in 1958, a product which eventually evolved into the Visa system. MasterCard came to being in 1966 when a group of credit-issuing banks established MasterCharge. Bank of America (BofA) (NYSE: BAC), based in Charlotte, North Carolina, is the third largest bank in the United States of America, measured in assets. ... 1958 was a common year starting on Wednesday (link will take you to calendar). ... VISA is a brand of credit card operated by the VISA International Service Association of San Francisco, California, USA owned by 21,000 financial institutions that issues and markets its own Visa products. ... MasterCard Incorporated is a membership organization owned by the 25,000 financial institutions that issue its card. ...

There are now countless variations on the basic concept of revolving credit for individuals (as issued by banks and honored by a network of financial institutions), including organization-branded credit cards, corporate-user credit cards, store cards and so on.

Controversy

Credit card companies do not want merchants to charge credit card users more than they charge other customers, even though the merchant pays a fee of 2 to 3 percent to process credit payments. If customers were responsible for this fee, it would often discourage credit card usage. In many places, governments have passed laws (at the urging of the credit card industry) to make this illegal. Australia is currently acting to reduce this by allowing merchants to apply surcharges for credit card users.

There is some controversy about credit card usage in recent years. Credit card debt has soared, particularly among young people. The major credit card companies have been accused of targeting a younger audience, in particular college students, many of whom are already in debt with college tuition and loans, and who typically are less experienced at managing their own finances. Credit card usage has tripled since 2001 amongst teen-agers as well. A controversy is a contentious dispute, a disagreement over which parties are actively arguing. ... Debt is that which is owed. ... A college (Latin collegium) can be the name of any group of colleagues; originally it meant a group of people living together under a common set of rules (con-, together + leg-, law). As a consequence members of colleges were originally styled fellows and still are in some places. ... Tuition is a fee charged for educational instruction. ... A loan is a type of debt. ...

Since the late 1990s, lawmakers, consumer advocacy groups, and college officials and other higher education affiliates, have become increasingly concerned about the rising use of credit cards among college students. A recent study has shown that both the number of students owning a credit card as well as the amount of credit card debt held by students has risen in the last couple of years. Since eighteen year-olds in many countries and most U.S. states are eligible for a card without parental consent or employment, many have been concerned that students will use credit unwisely because of their financial inexperience and suffer the long-term consequences of carrying high debt. A legislator is a person who writes and passes laws, especially someone who is a member of a legislature. ... Employment is a contract between two parties, one being the employer and the other being the employee. ...

Some Credit Card Companies, including Providian and Capital One, are well known for pursuing legal judgments against borrowers, garnishing wages and forcing sales of homes, adding in the cost of legal fees, often exceeding the original balance several times. This practice has encouraged numerous class action lawsuits seeking redress for borrower's rights. Capital One Financial Corp (NYSE: COF) is a Diversity Capital One received a 100% rating on the Corporate Equality Index released by the Human Rights Campaign starting in 2003, the second year of the report. ... Homie or homey, sometimes homes (used in the singular) is slang for friend. ... In law, a class action is an equitable procedural device used in litigation for determining the rights of and remedies, if any, for large numbers of people whose cases involve common questions of law and fact. ...

An example of a Credit card class action was where issuers were "rolling back" posting times to extract more late fees. The following banks are listed (with the amounts penalized).

• Providian: $405m
• Citibank: $15.5m
• Chase: $22.2m
• Bank One: $40m

Another controversial area is the universal default feature of many credit card contracts. When a cardholder is late paying a particular credit card issuer, that card's interest rate can be raised, often considerably. Given this circumstance with one credit card, universal default allows other card issuers to raise the cardholder's interet rates on other accounts, even if those other accounts are not in default.

Congress has been slow to introduce credit card reform legislation. A congress is a gathering of people, especially a gathering for a political purpose. ...

Credit card numbering

The numbers found on credit cards have a certain amount of internal structure, and share a common numbering scheme. There are many different numbering schemes for assigning numbers to entities. ...

The card number's prefix is the sequence of digits at the beginning of the number that determine the credit card network to which the number belongs. The card number's length is its number of digits.

The prefixes and lengths for the most common card types are:

In addition, the first 6 digits of the credit card number are known as the Bank Identification Number (BIN). These identify the institution that issued the card to the card holder. American Express (NYSE: AXP) is a diversified global financial services company headquartered in the United States. ... BankCard, founded 1974, is a shared brand credit card issued by Australian financial institutions, and accepted, at present, only by businesses within mainland Australia, Tasmania, and Lord Howe Island; Norfolk Island; New Zealand; and the Cook Islands. ... Diners Club International, originally founded as Diners Club, was formed in 1950 by Frank X. McNamara, Ralph Schneider and Alfred Bloomingdale. ... Discover Card is a brand of credit card operated by Discover Bank, a subsidiary of Morgan Stanley. ... Japan Credit Bureau, usually abbreviated as JCB, is a credit card company based in Tokyo, Japan. ... Japan Credit Bureau, usually abbreviated as JCB, is a credit card company based in Tokyo, Japan. ... MasterCard Incorporated is a membership organization owned by the 25,000 financial institutions that issue its card. ... VISA is a brand of credit card operated by the VISA International Service Association of San Francisco, California, USA owned by 21,000 financial institutions that issues and markets its own Visa products. ... A Bank Identification Number is the first six digits of a credit card, debit card, charge card, etc. ...

Some credit card issuers choose to restrict the card numbers they issue to those which pass a checksum test, where the final digit of the card number is used to confirm the initial digits. This has two benefits of preventing casual attempts to invent credit numbers (only one in ten will be valid), and also prevent mistakes when the card number is manually recorded. The checksum test for credit card numbers is the Luhn formula, described in Annex B to ISO/IEC 7812, Part 1. A checksum is a form of redundancy check, a very simple measure for protecting the integrity of data by detecting errors in data that is sent through space (telecommunications) or time (storage). ... The Luhn algorithm or Luhn formula, also known as the modulus 10 or mod 10 algorithm, was developed in the 1960s as a method of validating identification numbers. ...

Credit card organizations

• American Express
• Citi
• Diners Club
• Discover
• JCB
• MasterCard
• VISA

American Express (NYSE: AXP) is a diversified global financial services company headquartered in the United States. ... Citibank was founded in 1812 as City Bank of New York. ... Diners Club International, originally founded as Diners Club, was formed in 1950 by Frank X. McNamara, Ralph Schneider and Alfred Bloomingdale. ... Discover Card is a brand of credit card operated by Discover Bank, a subsidiary of Morgan Stanley. ... Japan Credit Bureau, usually abbreviated as JCB, is a credit card company based in Tokyo, Japan. ... MasterCard Incorporated is a membership organization owned by the 25,000 financial institutions that issue its card. ... VISA is a brand of credit card operated by the VISA International Service Association of San Francisco, California, USA owned by 21,000 financial institutions that issues and markets its own Visa products. ...

Collectible credit cards

A growing field of numismatics, or more specifically Exonumia, credit card collectors seek to collect various embodiments of credit from the now familiar plastic cards to older paper merchant cards, and even metal tokens that were accepted as merchant credit cards. Early credit cards were made of celluloid, then metal and fibre, then paper and are now mostly plastic. Download high resolution version (1112x701, 169 KB)Visas Happy Shoppers credit card design This work is copyrighted. ... This article needs cleanup. ... Exonumia - Wikipedia /**/ @import /skins/monobook/IE50Fixes. ... In chemistry, a metal (Greek: Metallon) is an element that readily forms ions (cations) and has metallic bonds, and it is sometimes said that it is similar to a cation in a cloud of electrons. ... Celluloid is the name of a class of compounds created from nitrocellulose and camphor, plus dyes and other agents, generally regarded to be the first thermoplastic. ... In chemistry, a metal (Greek: Metallon) is an element that readily forms ions (cations) and has metallic bonds, and it is sometimes said that it is similar to a cation in a cloud of electrons. ... For the meaning of fiber in nutrition, see dietary fiber. ... Piece of paper Paper is a thin, flat material produced by the compression of fibres. ... The term plastics covers a range of synthetic or semi-synthetic polymerization products. ...

See also

• Debit card
• Stored-value card
• Loan
• Credit score
• Electronic money
• Credit history
• Dave Ramsey, Anti Credit Card Advocate

This article needs cleanup. ... A stored-value card represents money on deposit with the issuer, not unlike a debit card. ... A loan is a type of debt. ... A credit score is a numerical index which represents an estimate of an individuals financial creditworthiness. ... Electronic money (or digital money) refers to cash and associated transactions implemented using electronic means. ... Credit history is a record of an individuals or companys past borrowing and repaying. ... Dave Ramsey (b. ...

External links

• Offshore Credit Card resources (http://offshore-income.com/jp/offshore-banking/offshore-credit-card.htm)
• Secret History of the Credit Card (http://www.pbs.org/wgbh/pages/frontline/shows/credit/) (PBS/Frontline/New York Times documentary on Credit Cards)
• Search engine that specializes in Credit Card Advocacy Issues (http://www.creditcard.org)
• Validating a Credit Card Number with JavaScript (http://www.evolt.org/article/rating/17/24700/)
• More information on credit card validation (http://www.beachnet.com/~hstiles/cardtype.html)
• Credit Card Usage and Debt among College and University Students (http://www.ericdigests.org/2003-2/credit.html)
• Impartial, credit card comparison tool, currently UK only (http://www.moneynet.co.uk/credit-card/index.shtml)
• Credit Card Validation with C# (http://coady.us/Josh/CreditCardValidation.htm)
• Credit Card Calculators (http://www.creditcardcomputer.com)
• Types of Credit Cards (http://www.typesofcreditcards.com) (Credit card education, advice and links to recent news items)
• Citibank Credit Cards (http://www.citicards.com)