How does a Credit Card work? (Part-2)

Just prior to begin swiping your credit card at retailer establishments that deal with big sale, put a signature on the windows- pause a moment to make yourself understand actually how a credit card does work.

Steps of how a credit card works are enumerated below:

Step#1-The Handover

After few minutes of dealing with cashier, you take decision to pay for your buying and place the card on retailer’s hand for making transaction.

Step#2 -The Validation

Thereafter swiping the card by the cashier will pass the account information over a secured internet connection. By this process validation of your account will be done. And the retailer will also make it sure with the issuing Financial Institution or bank whether the purchase can go through.

If the purchase is rejected, the most probable reasons are given below:

  • The credit card has not been activated.
  • Transaction limits of credit have exceeded.
  • Payment has been made late.
  • If the account is held (for example: if you have rented a car and so the company has control over the deposits of your account).
  • Internet connection of the retailer has become lower.

Step#3-The Debit

Suppose that the card does not get rejected and the internet connection of the retailer is not lower, the purchase has been successful.

By the repetition of the Step#1 through Step#3, your all purchases amount will be added to your account. When the month ends, you must repay via step#4.

Step#4-The Bill

For every month, the credit card issuers ( the FI or bank) will send you a bill which comprises of the purchases done during the previous month. The balance due and the amount of money must be paid for the month will be shown by the credit card issuer.

Assume, for example, limit of your credit card is $5000. But if $1000 is spent the minimum amount due would be $50 and not 3% ($30).

In fact, the full bill is paid off every time within its deadline and not later – if not, you must count extra fees for interest or your every interest or your every purchase and paying late.

Step#5 -The credit History

This step is regarded as the most important one because of its significance. For each time, if you make your payment on due time, have a low balance in your credit card and pay off you balance in full month, you are boosting the rating your credit.

However, if you have an excellent credit history, FIs and banks regard that you are responsible financially. It will be helpful for you in future to make a huge purchase (for example, property or a car).

Kirtton Chandro Das's picture

About the Author


Kirtton, who is a freelance writer of  web contents and newspaper editorials, is presently studying at University of Dhaka.