How does credit card work?

Credit cards are issued by a bank or credit union, usually known as a credit card issuer, after the credit provider has approved an account, after which the cardholders can use it to make purchases at merchants who accept that card. Merchants advertise which cards they accept often by displaying acceptance marks or they may communicate orally. When a making a purchase, the credit card user, then agrees to pay the card issuer. The cardholder consents by signing a receipt with a card details record indicating the amount to be paid, or by entering a PIN (personal identification number). Also, many merchants now card not present transaction (CNP). Electronic verification systems allow verification in seconds, that the card is valid and the credit card customer himself has sufficient credit to cover the purchase, thus allowing the verification to happen at time of purchase. Then the verification is done using a point-of-sale (POS) system or a credit card payment terminal with a communications link to the merchant's acquiring bank. Then the card’s data is obtained from a magnetic chip or stripe on the card. The credit card user is sent a statement each month, indicating the purchases undertaken, any outstanding fees, and the total amount owed. After receiving the statement, the cardholder must pay a defined minimum proportion of the bill by a due date, or he may opt to pay a higher amount up to the entire amount owed. The credit issuer will charge an interest on the amount owed, if the balance is not paid in full. And if the credit card user fails to pay the minimum payment at least by the due date, the issuer may impose a late fee or other penalties on him.