Credit cards have been around for more than half a century and virtually every American household has at least one. The first cards were cardboard, but a plastic version introduced in the 1960s has evolved into the standard form. A typical credit card has the issuer's name, cardholder's name and account number and expiration date on the front and a magnetic strip with that data and a security code on the back. Most are issued through card networks supported by banks.
How Cards Work
A traditional credit card records payment information at the point of purchase and sends that data to a payment processor or card issuer, who pays that amount through a bank and bills the cardholder. The cardholder then pays the card issuer. Typically there is no interest charged to the cardholder if the bill is paid in full by the due date.
Interest Rates Vary
Interest on balances on a traditional credit card varies from about 15 percent to 25 percent of the unpaid balance, usually figured on the average daily balance between statements. If you charge $150 on April 15, you'll get a bill about May 4 that must be paid by June 2. If you pay $150, there is no interest. If you only pay $100, interest will be charged on $50 and added to your next month's bill.
Variations on traditional cards look like standard cards but have different options. Reward cards accumulate cash, airline miles or points that can be redeemed by the cardholder. Low interest cards offer temporary interest discounts on transfers of balances from other card accounts. Secured cards have a basic deposit to guarantee payment of a certain amount. Student and business cards have different terms and rates.
The four major issuers of credit cards are American Express, Discover, Visa and MasterCard. American Express began as an issuer of traveler's checks. Discover grew out of Sears, which had its own credit card. Visa and MasterCard evolved from cards issued by BankAmerica and Chase. Individual businesses such as large stores and gasoline companies also issue credit cards, although today many are "co-branded" so a Southwest Airlines card actually works through Visa and Sears now co-brands with MasterCard.
Plastic Is Standard
Credit card companies have experimented with recording options, such as tokens or fobs, but the plastic card remains the standard. The original plastic credit cards were used to imprint information on a charge ticket, but the plastic strip and "swipe readers" replaced that. The Internet also changed traditional credit card use and many transactions now use only the card numbers and not the physical card.
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