Credit and Debit Cards - An introduction

Credit card is a payment system named after the physical card that is normally issued to the users of the system. Typically its also referred to as plastic in reference to the plastic card thats issued to the system users. There are 3 types of credit, charge and debit cards that are in use by various consumers in the market today. All cards differ in the way the money and the transaction is treated when the card is used to make a purchase. All cards no matter which purpose they are used for are governed by the ISO 7810 standard and are of the same shape and size.

1. Debit Card is a card thats tied to the checking or savings bank account of the consumer. Every time a purchase is made by the consumer, the amount is immediately deducted from the consumer's bank account making it virtually a cash system.

2. Charge Card is a card thats issued by a bank or a credit organization but requires the consumer to pay the balance in full each month. These cards typically provide a agreed upon graceperiod for purchases and charge a high interest rate if the consumer fails to pay it in full.

3. Credit card is a true revolving balance account which allows the consumer to borrow and spend at his will as long as the minimum payments are being made. The total amount that can be borrowed is limited by credit limit. Credit limit is the limit set by the bank when issuing the card based on the credit worthiness of its customer. Typically this is validated by checking the credit history of the customer

Nowadays almost all of us make the use of Debit and Credit cards; and some of us remain confused among the better of the two. t would be beneficial to know some interesting facts before ascertaining the meaning of Credit cards and Debit Cards. Let us first understand the meaning of some important terms:

The word “debit” is derived from the Latin word “debitum” which means ‘debt’. It is a formal bookkeeping and accounting word followed worldwide.The word “credit” is derived from the Latin word “credere” which means ‘to believe. It is a formal bookkeeping and accounting word followed worldwide. Now, when we have understood the meaning of debit and credit to a slight extent, it would be easy to understand the meaning of debit and credit cards.

Debit cards, also known as check cards, are plastic cards bearing the logo of MasterCard or Visa. As soon as you make a financial transaction through them, the transaction amount gets automatically deducted from your source account within no time.

You can withdraw only an amount which is already deposited in your source account. You do not have the facility to enjoy credit or overdraft on such cards. However, some banks are nowadays providing overdraft facility for a hefty charge, so for that, you will need to seek information from the debit-card issuer bank. You do not need to pay a late fee or an outstanding due which is the case with a credit card, with the exception of an overdraft debit card.

These cards are accepted at all places which display notice board symbolizing their acceptance. These cards can be used at ATMs, shopping malls and general stores etc. to purchase any type of product. You may need to punch in the PIN (personal identification number) or put your signature, just as you make while using a credit card.

Nowadays, many banks are offering cash back rewards and points/loyalty points which can be redeemed to purchase any product or service of the equivalent value. But, this is not a universal phenomenon and may vary from one bank to another.
Now, when we have understood the basic meaning and functioning process of Debit cards, we would move to the meaning and functioning of Credit cards.

Credit cards, just like debit cards, are plastic cards which allow you to make purchase of goods or services. They also bear the MasterCard and Visa logo and are accepted at all stores which display their acceptance for making purchases.

They are considered to be their worth when you are in the need of an amount which is not there in your account. In credit cards, you do not need to make initial deposits to use them at a later stage, as is the case with debit cards. You withdraw amount, and this amount is a type of loan from your credit card issuer company. You need to make payments at the end of your billing cycle to avoid late fee and hefty charges.

It is advisable that you must pay off the entire balance at the end of each billing cycle; else the debts accrued by you will attract interest, even though you are regular in making the minimum payments.