Major Credit Cards: How They Work and Their Features

Credit cards are a convenient way to make purchases, but have you ever wondered how they work? A credit card is essentially a loan from the bank that allows you to buy things now and pay for them later.

To get a credit card, you'll typically need to apply with a bank or credit card company and provide some personal and financial information. This is usually done online or in person. Some credit card companies may also require a security deposit.

Once you're approved, you'll receive a physical card and a statement that outlines your account details, including your credit limit and payment due date. Most credit cards have a credit limit, which is the maximum amount you can charge on the card before you need to pay more.

The credit limit is determined by the bank based on your creditworthiness, which is a measure of how likely you are to repay the loan. This is usually based on your credit history and income.

A credit card is a thin rectangular piece of plastic or metal issued by a bank or financial services company.

Credit cards are issued by banks or financial services companies and allow cardholders to borrow funds to pay for goods and services.

Most businesses let customers make purchases with credit cards, which remain one of today's most popular payment methods.

You can use a credit card to borrow money to complete a transaction, and the issuer typically charges you interest if you don't pay the money back by the next statement period.

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Credit cards typically charge a higher annual percentage rate (APR) compared to other forms of consumer loans.

Interest charges on unpaid balances are usually imposed about a month after a purchase is made, unless there's a 0% APR introductory offer.

By law, credit card issuers must offer a 21-day grace period before interest on purchases can start accruing.

Paying off balances before the grace period expires is a good practice when possible, as it can save you from interest charges.

It's essential to understand whether your issuer accrues interest daily or monthly, as daily accrual translates into higher interest charges for as long as the balance is not paid.

Mistakenly switching from a monthly accrual card to a daily one may nullify savings from a lower interest rate.

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Credit cards typically charge a higher annual percentage rate (APR) than other forms of consumer loans.

The APR on a credit card can be as high as 20% or more, which means you'll pay a lot of interest on your balance if you don't pay it off in full each month.

Interest charges on any unpaid balances charged to the card are usually imposed approximately one month after a purchase is made, unless there's a 0% APR introductory offer in place.

Paying off balances before the grace period expires is a good practice, as it can save you money on interest charges. The law requires credit card issuers to offer a grace period of at least 21 days before interest on purchases can begin to accrue.

Some credit cards accrue interest daily, which can translate into higher interest charges for as long as the balance is not paid.

Here's a breakdown of the transaction steps involved in using a credit card:

Chargebacks are typically initiated by the cardholder, and the issuer returns the transaction to the acquirer for resolution.

So, you're wondering what's the difference between the transaction date and the posting date on your credit card statement? The transaction date is the day you made a purchase or payment, and it's usually held in a pending category while the company processes the activity.

The posting date, on the other hand, is the day the purchase or payment is actually added or deducted from your account balance. This is the date that really matters, as it's the one that affects your available credit and account balance.

According to the Federal Trade Commission, the posting date is an important detail to keep in mind when it comes to your credit card account.

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Credit cards come with a variety of features and fees that can impact your wallet. Merchants pay interchange fees, which can range from 1 to 6 percent of each sale, and can vary depending on the type of merchant, card, and transaction.

These fees can add up, and some merchants may pass them on to customers in the form of a surcharge. In some cases, merchants will add a surcharge to credit card transactions to encourage customers to use cash or other forms of payment.

Some credit cards also come with annual fees, which can range from $50 to $700. These fees are charged by the card issuer to extend credit to the cardholder.

Here are some common fees charged to credit card customers:

Credit cards often have both fixed and variable APRs.

You can find out which type of APR you have by reading the cardholder agreement that comes with your credit card.

Card issuers must legally disclose their APR type and rate, and if a fixed APR changes, they must alert consumers.

Some credit cards have fixed APRs for purchases, but variable APRs for cash advances or late payments.

Read the fine print to make sure you understand the APR terms on your credit card.

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Annual fees can be a significant cost for credit card users. Some cards charge annual fees ranging from $50 to $700, often for rewards or incentives like cash back.

If you're considering a credit card with an annual fee, it's essential to understand what you're getting in return. Some cards offer benefits like travel insurance, concierge services, or exclusive rewards programs.

The Credit CARD Act of 2009 requires credit card companies to send cardholders a notice 45 days before they can increase or change certain fees, including annual fees. This gives you time to review and adjust your card usage accordingly.

Here are some examples of annual fees for popular credit cards:

Remember, annual fees can add up quickly, so it's crucial to weigh the benefits against the costs before choosing a credit card.

Interest charges can be a major headache for credit card holders. If you don't pay your balance in full each month, you'll likely be charged interest on the entire outstanding balance from the date of each purchase.

The interest calculation formula is usually detailed in your cardholder agreement, but it's essentially (APR/100 x ADB)/365 x number of days revolved. This formula takes into account your annual percentage rate (APR), average daily balance (ADB), and the number of days the balance has been revolving.

Interest rates can vary widely between card issuers, with some offering teaser rates or promotional APRs for initial periods of time, and others charging as high as 40 percent. In the U.S., there is no federal limit on the interest or late fees credit card issuers can charge.

If you're late with a payment, your interest rate may jump dramatically, and you may even be charged a penalty interest rate that applies retroactively. For example, if you have a credit card with a teaser rate of 0 percent for six months, but you're late with a payment, you may be charged a penalty interest rate of 23.99 percent.

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Here's a breakdown of how interest charges can add up:

Remember, interest charges can add up quickly, so it's essential to pay your balance in full each month to avoid these fees.

Credit cards often come with hidden costs that can surprise even the most seasoned users. In the United States, some states have laws against surcharging, meaning merchants can't charge customers a higher price for using a credit card. California, Colorado, Connecticut, Florida, Kansas, Massachusetts, Maine, New York, Oklahoma, and Texas are among the states that have such laws.

Merchants are often charged a commission of around 0.5 to 4 percent of the transaction amount, and they may also pay a variable charge, called a merchant discount rate, for each transaction. This can be a significant cost, especially for merchants with very low average transaction prices.

Merchants in the United States have been fighting what they consider to be unfairly high fees charged by credit card companies. In December 2013, a federal judge approved a $5.7 billion settlement in a case involving the National Retail Federation and major retailers such as Wal-Mart.

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In the UK, merchants won the right to charge customers different prices according to the payment method, but this was later removed by the EU's 2nd Payment Services Directive. As of 2007, the UK was one of the world's most credit card-intensive countries, with 2.4 credit cards per consumer.

Merchants are often not allowed to charge a higher price when a credit card is used as opposed to other methods of payment, so there is no penalty for a card holder to use their credit card. However, the credit card issuer is sharing some of this commission with the card holder to incentivise them to use the credit card when making a payment.

Here are some examples of hidden costs associated with credit cards:

Credit cards offer a range of benefits to cardholders, including convenience and financial benefits. No interest is charged when the balance is paid in full within the grace period, which in the US typically ranges from 21 to 25 days.

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One benefit is that the bank is jointly liable with the merchant for purchases of defective products over £100 in the UK. This provides an added layer of protection for cardholders.

Many credit cards offer benefits such as extended product warranties, price protection, and purchase protection. These benefits can provide peace of mind and financial protection for cardholders.

Credit cards offer many benefits to cardholders, including convenience, as you can make small short-term loans without calculating a balance remaining before every transaction.

One financial benefit is that no interest is charged when the balance is paid in full within the grace period, which is typically 21, 23, or 25 days in the United States.

In some countries, like the U.K., the bank is jointly liable with the merchant for purchases of defective products over £100, providing an added layer of protection.

Many credit cards offer benefits such as extended product warranties, price protection, and purchase protection, which can be a huge advantage for cardholders.

Some credit cards also offer travel insurance, including rental car insurance, travel accident insurance, baggage delay insurance, and trip delay or cancellation insurance, making it a great option for travelers.

In addition, many credit cards offer loyalty programs that reward cardholders with cashback or points for their purchases, which can be redeemed for gift cards, products, or travel expenses.

Some countries limit the amount for which a consumer can be held liable in the event of fraudulent transactions with a lost or stolen credit card, providing an added layer of security.

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Credit cards offer several benefits to merchants, making them a popular choice for customers and businesses alike. For one, card-based purchase amounts reduce resistance compared to paying cash.

Merchants also appreciate the added security that credit cards provide, as the issuing bank commits to pay the merchant the moment the transaction is authorized, regardless of whether the consumer defaults on the credit card payment. This eliminates the risk of customers not paying their bills.

The reduced need for cash handling is another advantage, as it reduces theft opportunities by minimizing the amount of cash on the premises. This also saves merchants the hassle of processing checks and cash, as well as transporting them to the bank.

Prior to credit cards, merchants had to evaluate each customer's credit history before extending credit, which was a time-consuming and costly process. Now, banks assume this risk, freeing up merchants to focus on their core business.

With credit cards, customers can make purchases immediately, without being limited by the amount of cash in their pocket or the state of their bank balance. This immediacy is a key driver of merchant marketing efforts.

The bank charges merchants a commission, or discount fee, for this service, which is typically a percentage of the transaction amount, plus a fixed fee, known as the interchange rate.

Credit card issuers are facing regulatory pressures that could impact their profits. Regulators will scrutinize consumer fees, interest rates, and merchant interchange fees.

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Late fee regulations and proposed swipe fee legislation pose a threat to card issuers' profitability. The Consumer Financial Protection Bureau is also introducing interest rate security measures.

The Credit Card Competition Act (CCCA) has been reintroduced, which could require banks to give merchants more choices when choosing a payment network. This could lead to lower processing fees for merchants, but it's unclear how consumers would be affected.

Security is a top priority when it comes to credit card transactions.

The Payment Card Industry Data Security Standard (PCI DSS) is a set of rules that all merchants and service providers must follow to ensure the secure handling of credit card information. This standard is enforced by the major credit card companies, including Visa and Mastercard.

The PCI DSS requires merchants to protect cardholder data at all times, and to never store sensitive authentication data after authorization. This means that merchants should not store credit card numbers, expiration dates, or security codes.

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The PCI DSS also requires merchants to implement a variety of security measures, including firewalls, intrusion detection systems, and encryption of cardholder data. This helps to prevent unauthorized access to credit card information.

In addition to the PCI DSS, the General Data Protection Regulation (GDPR) in the European Union also has strict rules for the handling of credit card information. The GDPR requires merchants to obtain explicit consent from cardholders before storing their credit card information.

The GDPR also requires merchants to implement robust security measures to protect cardholder data, and to notify cardholders in the event of a data breach. Merchants who fail to comply with the GDPR can face significant fines and penalties.

The Gramm-Leach-Bliley Act (GLBA) in the United States also has rules for the handling of credit card information. The GLBA requires financial institutions to protect the confidentiality and security of cardholder information.

The GLBA also requires financial institutions to provide cardholders with notice of their rights and responsibilities regarding the handling of their credit card information. This includes the right to opt out of sharing their information with third parties.

In summary, there are several regulations and standards that govern the handling of credit card information, including the PCI DSS, GDPR, and GLBA. Merchants and service providers must comply with these regulations to ensure the secure handling of credit card information.

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Using credit cards can weaken self-regulation, leading to overspending.

Consumers are likely to spend more money when they pay by credit card.

The abstract pain of payment is not experienced when using credit cards, making it easier to overspend.

Research has found that using credit cards can increase consumption of unhealthy food, compared to using cash.

This can be a problem for people who struggle with self-control, as the ease of credit card use can lead to impulsive purchasing decisions.

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Regulators will scrutinize consumer fees, consumer interest rates, and merchant interchange—or "swipe"—fees.

Late fee regulations, as well as a proposed swipe fee legislation and Consumer Financial Protection Bureau interest rate security, present longer-term threats to card issuers' profitability.

The US Congress introduced legislation known as the Credit Card Competition Act (CCCA) that would seemingly dismantle credit card rewards programs.

The CCCA would require banks to give merchants more choices when choosing a payment network for processing card transactions.

Rewards card programs are funded partially by the interchange fees paid by merchants, so if swipe fees disappear, the perks consumers have come to rely on and expect may dry up.

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Credit card networks and issuers are two distinct entities that work together to facilitate credit card transactions. Credit card networks process and transfer funds between the cardholder and merchant, with the four main credit card networks in the U.S. being Visa, Mastercard, American Express, and Discover.

Credit card issuers, on the other hand, are the banks or financial establishments that provide credit cards and lines of credit to cardholders. They manage the account, approve or deny applications, and are responsible for communicating with cardholders.

Some major credit card issuers include Synchrony Financial and Comenity Bank, which issue store credit cards for various retailers. While many credit cards are issued by major banks, it's not always the case. For example, Bank of America credit cards are often associated with the Visa network, but American Express and Discover issue their own cards directly.

Here are the four main credit card networks in the U.S.:

These networks process transactions and transfer funds between cardholders and merchants, with each network having its own set of principles and details.

BankAmerica and MasterCard have a long history together, but it's worth noting that BankAmerica is actually a credit card issuer, not a network like MasterCard. BankAmerica was founded in 1904 as Bank of Italy, and it wasn't until 1958 that they released their first credit card, one of the first available to the general public.

BankAmerica is now one of the top five card issuers in the U.S. and holds the 7th largest card portfolio globally, with over 67 million clients.

Their first credit card was released in 1958, and today they offer many credit cards, including student cards with no annual fee.

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Visa is the king of the mountain in the card network industry, for both commercial and consumer use, and is expected to post $6.445 trillion in total card transaction value in 2024.

Mastercard, American Express, and Discover are also major credit card networks in the U.S., with each having a significant share of the market.

The four main credit card networks in the U.S. are Visa, Mastercard, American Express, and Discover, which process and transfer funds between the cardholder and merchant.

Each credit card network has its own principles, though the details will vary from network to network, and payment processors use your card's network to transfer information between your bank and the merchant's.

Visa and Mastercard are widely accepted worldwide, while American Express may incur an additional transaction fee.

Credit card networks, such as Visa, Mastercard, and American Express, are how the information is actually transferred between your bank and the merchant you're purchasing from.

Here are the four main credit card networks in the U.S.:

Interlink is the electronic funds transfer division of Visa and operates primarily within the US, using a PIN and providing cash back from the merchant.

American Express is a major player in the credit card industry, with a long history dating back to the early 1900s when they expanded into travel and financial services. They began issuing their first paper charge cards in 1958 and have since grown to become the second-largest card issuer in the U.S.

American Express now offers both credit and charge cards, with an excellent rewards program that allows you to earn Amex Membership Rewards points. These points can be redeemed for gift cards, paying with points online, or booking travel through the Amex travel portal.

The majority of American Express cards are issued directly through American Express, but some are issued in partnership with other credit card issuers. American Express' card transaction value is expected to increase 8.9% YoY to $1.107 trillion in 2024, according to an August 2023 EMARKETER forecast.

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Capital One is a major player in the credit card industry, with a massive card portfolio that's one of the largest globally. They've been around since they were established as a monoline bank, only to issue credit cards, which surprisingly paid off.

One of the reasons Capital One is so successful is that they offer a wide range of credit cards, including some geared towards people with low, no, or poor credit. This makes it easier for people to get approved for a credit card.

Capital One's rewards program is also impressive, with cash-back and travel miles that never expire as long as your account stays open. This means you can earn rewards without worrying about losing them over time.

In addition to credit cards, Capital One also offers a variety of other financial products, including charge cards, checking and savings accounts, business and auto loans. This makes them a one-stop shop for all your financial needs.

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JCB is a well-established credit card network that has made a significant presence in the Japanese market and beyond. In fact, JCB cards are used in over 20 different countries.

JCB has partnered with Santander, a bank in Spain, to handle merchant acceptance for JCB cards. This partnership is a testament to JCB's growing global reach.

JCB's cards have gained popularity worldwide, and this partnership with Santander is a strategic move to expand its presence in the Spanish market.

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Barclays is a global bank with a rich history, established in London, England in 1690. It's hard to believe they've been around for over 330 years!

By 1896, Barclays had grown to have 12 different banks across England, and their expansion continued from there. They launched their first credit card for consumers in the 1960s.

Today, Barclays operates in over 40 different countries, including the U.S. where they do business as Barclays Bank of Delaware. This global reach has made them the fifth largest bank in Europe.

Barclays offers co-branded credit cards for retail and travel, which means you'll see their name paired with other popular brands. They've had limited success issuing credit cards under their own name.

Some of the rewards available on Barclays credit cards include cash-back, dining out, groceries, and travel, although the choice is somewhat limited compared to other rewards programs.

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Citi is a well-established credit card issuer with a rich history dating back to 1812. They were originally known as City Bank of New York, and have undergone several name changes over the years.

Their first credit card, the "Everything Card", was released in 1967 and was later rebranded as MasterCard. Today, Citi holds the second-largest U.S. portfolio and the third-largest card portfolio globally.

Citi offers a wide range of credit cards, including options for those with low or no credit rating. These cards may have limited availability, but are still an option for those with less-than-perfect credit.

Their online savings accounts are highly recommended due to their high-yield capabilities. This makes Citi a great choice for those looking to save money.

The Citi ThankYou Rewards program offers a variety of rewards, including cash-back, pay-by-points, and gift cards. They also have travel perks, including transfers to their travel and hotel partners.

Citi has a reputation for being relatively easy to get approved by, making them a good option for those who may not have the best credit history.

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U.S. Bank is a well-established financial institution with a long history dating back to 1891 when it was founded as the United States National Bank of Portland.

They have a wide presence across the entire U.S. and offer financial services and products to consumers, businesses, and corporations.

U.S. Bank has a relatively small portion of the credit card market, but they offer a huge variety of options, including both co-branded and bank-branded cards.

Their rewards program allows you to earn cash back on your regular day-to-day purchases and redeem across a huge range of categories, including grocery and department stores, electronics, travel, and accommodation.

However, it's worth noting that your cash-back rewards do have an expiration date of 36 months after the billing cycle in which you earned them.

This means you'll need to keep an eye on your rewards and redeem them before they expire to get the most value out of your U.S. Bank credit card.

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Wells Fargo was established in 1852 to provide "express" banking services to California during the gold rush era. It's amazing to think about how far the company has come from its humble beginnings.

Wells Fargo first began issuing credit cards at the end of the 20th Century. This marked a significant shift in their services, expanding their offerings beyond traditional banking.

Wells Fargo offers car loans, mortgages, and more, making them a one-stop-shop for all your financial needs. Their credit cards are available for both consumers and businesses, and they're one of the most recognizable financial brands in the country.

The Wells Fargo Rewards program is highly competitive, allowing you to earn and redeem rewards across categories such as travel, gift cards, and purchase reward redemption.

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Credit card usage is on the rise, especially with the growth of ecommerce. By 2024, US consumers will spend $1.199 trillion on retail ecommerce, up 8.7% YoY.

Consumers are adapting to changing spending behaviors, and credit card marketers are taking notice. To meet the needs of consumers hit hard by record-high inflation, credit card marketers can offer more flexible payment options.

The convenience of credit card payments is driving this growth, making it easier for people to shop online.

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Credit card companies are the backbone of the credit card industry, and there are several major players that dominate the market. There are ten major credit card companies in the U.S., responsible for over 80% of the market.

These companies include American Express, Bank of America, Barclays, Capital One, Chase, Citi, Discover, Synchrony, U.S. Bank, and Wells Fargo. It's worth noting that while you can have a credit card from outside these companies, it's more likely you'll hold a card from one of the major companies due to their national and global presence.

Credit card companies make their money through various means, including transaction fees, interest fees, and annual fees. Transaction fees can range from 1% to 4% and are usually charged by the card network. Interest fees, on the other hand, are charged when you fail to pay your credit card bill on time and in full, with APRs varying from card to card and issuer to issuer.

Here's a breakdown of the major credit card companies:

Building a good credit history is a combination of things—making regular, on-time payments, avoiding late payments, keeping credit utilization under your credit limit, and maintaining a low debt-to-income ratio.

Regular, non-secured, and secured credit cards can help consumers build a positive credit history if used responsibly.

Paying off your balance each month is best, but your card issuer won't allow you to use another card to do that.

A credit score will rise by making responsible purchases and paying them off promptly, making a consumer more attractive to other lenders.

Closing a line of credit can actually hurt your credit score since you lose the history and the available credit.

If you've struggled to improve your credit score but you've finally paid off a credit card's balance, don't close the card if you've had it for a while.

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The credit card industry spread rapidly outside of North America, but at a slower pace than in the US. In 1966, Barclaycard in the UK launched the first credit card outside the United States.

Credit card adoption levels in countries like Canada, the UK, Australia, and New Zealand were high during the latter 20th century. However, many cultures were more cash-oriented or developed alternative forms of cashless payments.

France, in particular, developed and adopted chip-based credit cards due to strict regulations regarding bank overdrafts. This led to a significant reduction in credit card fraud.

In some countries, debit cards and online banking were more widely used than credit cards. It took until the 1990s for credit card market penetration levels to approach those in the US, Canada, and UK.

Japan remains a cash-oriented society, with limited credit card adoption mainly among large merchants.

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Digital Payments Innovation is making a huge impact on the credit card industry. By 2024, US consumers will spend $1.199 trillion on retail ecommerce, up 8.7% YoY, according to a July 2024 EMARKETER forecast.

The convenience of credit card payments has supported ecommerce growth, making it easier for people to shop online. This growth is expected to continue, with retail ecommerce projected to reach new heights.

As a result, digital payments are becoming an essential part of our lives, and credit card companies are at the forefront of this innovation. By 2024, US consumers will spend a significant amount on retail ecommerce.

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The top credit card companies in the U.S. are responsible for over 80% of the market. This is according to the Nilson Report.

The major credit card companies operate on a national and global scale, making them more likely to be the ones you'll hold a card from. These companies have a significant presence in the market.

Here are the top 10 credit card companies in the U.S.:

Bank of America has a long history dating back to 1904 when it was founded in San Francisco as Bank of Italy.

Today, Bank of America is responsible for roughly 67 million clients, including both the average consumer and small businesses.

Their first credit card, released in 1958, was one of the first credit cards available to the general public.

Bank of America is in the top five card issuers in the U.S. and holds the 7th largest card portfolio globally, according to the Nilson Report.

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They offer many credit cards, including student cards that don't come with an annual fee.

Their rewards program, Preferred Rewards, is highly recommended and offers multi-tiered rewards, including discounts on interest rates, rewards bonuses, and waived ATM transaction fees.

Bank of America's Diamond tier customers also get perks across dining, travel, shopping, and more.

Credit card companies make their money through various fees and charges, including transaction fees, interest fees, annual fees, and other miscellaneous fees.

Transaction fees are charged by card networks for every transaction, ranging from 1% to 4% of the purchase amount.

Interest fees, or APR, vary from card to card and are charged when you fail to pay your credit card bill on time and in full.

Some credit card issuers charge annual fees on certain cards, often targeting consumers with bad credit.

These fees can add up quickly, so it's essential to be mindful of your spending habits and make timely payments to avoid extra charges.

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Here's a breakdown of the major ways credit card companies earn revenue: