Credit card is a small plastic card containing a means of identification which allows the holder to pay bills using loans from credit companies. Credit cards are issued by a bank or a financial services company which allows the cardholders to borrow funds and pay later.
Credit card holders must pay back those funds and other interests that will accrue.
How Does Credit Card Work?
A credit card transaction has a long processes attached to it. When you want to make purchases with your credit card, the merchant’s card terminal makes enquiries to your card issuer to ascertain whether your card is genuine, valid and whether you have enough credit.
Upon confirmation from your card issuer, you are allowed to go with your goods if the transaction is approved.
A credit card issuing company enters into an agreement with merchants for them to accept their credit cards. These merchants accept credit cards from customers and allow them pay for their goods and services with the credit available to them by the issuing companies.
When a purchase happens, the card owner agrees to pay the card issuer. The card holder is made to sign a receipt with a record of the card details and indicating the amount to be paid or by entering a personal identification number (PIN).
Electronic verification system provides a quick way for merchants to verify in a matter of seconds whether the card is valid and whether the card has enough credit to cover their purchases.
This verification is performed using a credit card payment terminal or point of sale system with a communications link to the merchant’s acquiring bank. The card holder swipes their card on the terminal at the store and data contained in the card are obtained by the merchant.
In the case where the credit card is not available at the point of purchase, the customer is made to provide additional information like the security code on the card, date of expiry and the address on the card.
At the end of the agreed period, a statement of account is sent to the cardholder by the issuer stating the credit balance on the card and the transactions made within the time in view. This statement can be sent electronically through email or printed on paper.
Benefits Of Credit Cards
Convenience: This is the most important benefit of credit cards. This is because unlike other cards, a credit card allows small short term loans to be made to a card holder provided it do not exceed the maximum credit line for the card.
2) When the balance on credit cards is paid in full within the grace period, no interest will be charged on the credit card.
3) Some credit cards offer reimbursement for theft or damage on purchased products, and also gives the customers extended product warranty.
4) Some cards also provide travel insurance such as baggage delay insurance, trip delay or cancelation insurance etc.
5) Some cards also offer loyalty benefits. These can be in form of points which can be redeemed for gift cards, airline tickets etc.
Types Of Credit Cards
Major credit cards include Visa, Master card, Discover and American Express. Many credit cards has benefits to the holders. They include: hotel room rentals, gifts certificates and cash back on purchases.
1) Rewards credit card
This credit card gives you points or cash back based on the percentage of your spending. The more you spend, the more your reward points. These points can be redeemed for gift cards, extra credit and other freebies.
2) Cash back credit card
In this type, the holders earn cash rewards on their spending.
3) Travel Credit CardsÂ
These give you the opportunity to earn rewards on spending that pertains to travel exclusively. The reward points earned can be used to make purchases on your travel. You can also use these rewards to buy air tickets and pay for hotel accommodation.
A person who travels a lot will find these cards most useful as it has such benefits as airport lounge access, annual travel credits and so on.
4) Business credit card
A business credit card gives its holders the opportunity to keep their personal and business expenses separate. You should look out for business a credit card that gives you maximum benefits out of all your spending. Also you should find cards that helps you track your expenses.
5) Students credit cards
These cards are issued to students and young people with very small credit. These cards can offer bonuses for good grades.
Credit card and Debit card
Both of these cards are used to make payments, but in debit card, the money for the transaction must be in the holder’s bank account. With a debit card, you are transferring the money you have in your account to the merchant’s account directly.
But with credit cards, you are transferring the credit from your issuer to the merchant. Most ATM cards in Nigeria are debit cards.
Credit Cards and ATM Cards
Automated Teller machine cards are used primarily to withdraw cash from the holders account. This card has data pre-installed on them which bears information about the account. This card is also used for payment with money that is already in the account of the holder.
Choosing The Right Type Of Credit Card
1) Check your credit history
Before choosing a credit card, you must pay attention to your credit history. Check your credit score
2) Identity your goals
Knowing your goals will enable you to choose the right card for you. A business man or woman who travels a lot has a different goal from a high school student. The different credit limits which apply to each credit card should be taken into consideration before choosing a credit card.Â
3) Assess your debt
Knowing very well that more credit cards mean more debt, you should be careful when taking more credit cards. This is to avoid the situation whereby one cannot pay for his/her debts. This will affect your credit score and rating negatively.
4) Compare the rewards program
Before choosing a credit card, compare the rewards allotted to each one. The different types of credit cards have benefits for each. You should find the right card which gives you maximum value for your business, personal lifestyle and the charges and interests of each one.
5) Pay Attention To The Charges And Fees On Each Card
Each type of credit card has different carrying fees charged on it. Knowing these charges will help you to make the right choice for credit card.
Credit Cards In Nigeria
Credit card usage is low in Nigeria when compared to the international scene. Many Nigerians are not aware of the use of credit cards. This is because it is very rare in the country. A credit card let’s you access the credit limit your card issuer gives you.
A credit limit works in form of a loan. But instead of cash, the bank or issuer gives you permission to borrow credit and pay later.
Companies In Nigeria That Offers Credit Cards, This Is Will Help Foreign Travels Coming Into The Country
First bank issues credit cards to its customers to make purchases and pay for goods and services.
First bank offers: a) Visa Infinite This Is the highest card in the Visa card products. This is reserved for their top customers.Â
b) Naira credit card: This is the second card issued by first bank in Nigeria.
c) Visa Gold: This is a dollar denominated card issued in partnership with visa international by first bank of Nigeria.
2)Â United Bank of Africa (UBA): The UBA naira credit card issued to customers who has been using a UBA salary account for more than 3 months. This card can also be used worldwide at any ATM or POS outlets.Â
3) Standard Chattered of Nigeria: These offer two credit card typesÂ
a) Visa Gold credit card: This is issued to customers who are working in corporate organization who have a minimum salary of $130 and as well as government worker on a minimum salary of $87.
b) Visa platinum credit card: This is issued to the customers of the bank who are using their account to receive salary and you must have a good credit history.
4) Zenith Bank: This bank offers classic, Gold and platinum credit cards which can be used for purchases on ATM, POS and the web.Â
5) Guarantee Trust Bank: GTBANK offers a Visa credit card which is accepted internationally and is denominated in dollars. This card is valid for a period of 3 years.Â
6) Stanbic IBTC Bank:Â Stanbic IBTC credit card designed to provide customers with cash when needed.Â
Parties Involved In Credit Card Transactions
Card holder: The holder of the card is the consumer. This person approaches a bank or credit unions to obtain their credit cards. This person now uses the credit to make purchases and is expected to pay back the credit to the card issuer.
The card Issuer: This refers to the bank or the financial institutions that issued the credit card to the cardholders. The bank provides loans in form of credit and allows the holder to pay their bills with the credits. The banks or issuers charge interests on the credits.
Merchant: These are businesses or individuals who offers goods and services and who accept credit card for payments from the card holder. They accept credits after verifying the authenticity of the cards.
Acquiring banks: The financial institution accepting payment for the products or services on behalf of the merchant. The bank which the merchant receives payment for their goods and services.
Transaction network: The system that implements the electronic transaction.
Card Association: This refers to an association of card issuing banks that set the terms and conditions for the transactions. E.g, Visa, MasterCard, American Express etc.
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