How Does The System Work – Using Your Credit Card?
Today over £1 trillion of credit card transactions are processed through over 20 million outlets worldwide each year! But, how does the system work – how is a credit card transaction processed?
Generally, in order for you to be able to process a credit card transaction, you need to find an outlet that is willing to accept the type of credit card you have. Usually this can be easily determined because the outlet will display the symbol of your credit card, e.g. the Visa or MasterCard symbol. On you have established that the outlet will accept your credit card, you then
(a) provide the outlet with you card and the card is processed through a swipe system and your card will then be charged the amount of the purchase, or
(b) enter your Personal Identification Number (PIN), which will then charge the purchase to your credit card account.
Some things to consider when using the credit card system
Before you start to use the credit card system, it is essential that you understand:
- that the credit card debt is unsecured, i.e. you do not have to give any security over the debt that you create on the card
- that you may have between 35 – 64 days interest free credit on any items you purchase -depending on when you buy them, and when you receive a statement, and when you are required to pay the bill
- that you have a fraud guarantee, including internet fraud guarantee and identity theft guarantee, which means you’ll likely only be liable for the first £50 of expenses on your card if your card is used fraudulently
- that you have 24-hour emergency replacement – should you lose your credit card or have the card stolen
- in the case of some (but not all) credit card providers, you have a price match guarantee that guarantees that the price you pay for goods will be the cheapest you can find, otherwise you will be entitled to a refund (but, note, this is usually subject to a time period limitation, such as 30-60-90 days)
- that you may well have purchase protection, which means any purchases you make are insured from breakage and loss
- that you could have extended warranty, which means the products you buy on your credit card have a warranty period longer than usually offered to cash-buyers; and
- you may have emergency accident and travel insurance for when you travel anywhere.
So, before you use your credit card, make sure that you ascertain whether or not you have some or all of the above benefits when using your credit card.
Minimum Payments
Each credit card provider will likely have a different amount that it expects its cardholders to repay each month as part of their minimum monthly repayment. In most cases this amount will either be 5% of the then outstanding debt, with a minimum payment of £5, or a very close sum. To ensure you are making the correct minimum monthly repayment, you need to check your credit card statement and see the amount specified therein.
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