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Credit Card

A credit card system is a type of retail transaction settlement and credit system, named after the small plastic card issued to users of the system. A credit card is different from a debit card in that the credit card issuer lends the consumer money rather than having the money removed from an account. It is also different from a charge card (though this name is often used to describe credit cards by the public) in that charge cards do not extend the user credit -- the charges must be paid each month in full. Most credit cards are the same shape and size, as specified by the ISO 7810 standard.

A credit card user is issued after approval from a provider (often a general bank, but sometimes from a captive bank created to issue a particular brand of credit card, such as American Express Centurion Bank), in which they will be able to make purchases from merchants supporting that credit card up to a prenegotiated credit limit. When a purchase is made, the credit card user indicates his/her consent to pay, usually by signing a receipt with a record of the card details and indicating the amount to be paid. More recently, electronic verification systems have allowed merchants (using a strip of magnetized material on the card holding information in a similar manner to magnetic tape or a floppy disk) to verify that the card is valid and the credit card customer has sufficient credit to cover the purchase in a few seconds, allowing the verification to happen at time of purchase. Some services can be paid for over the telephone by credit card merely by quoting the number embossed onto the card (the credit card number), and they can be used in a similar manner to pay for purchases from online vendors.

Each month, the credit card user is sent a statement indicating the purchases undertaken with the card, and the total amount owed. The cardholder must then pay a minimum proportion of the bill by a due date, and may choose to pay more or indeed pay the entire amount owed. The credit provider charges interest on the amount owed (typically at a much higher rate than most other forms of debt). Credit card issuers may waive interest charges if the balance is paid in full each month, which allows the credit card to serve as a form of revolving credit, or they may choose to apply any payments toward recent rather than previous debt. Interest rates can vary considerably from card to card, and the interest rate on a particular card may jump dramatically if the card user is late with a payment on that card or any other credit instrument. As the rates and terms vary, services have been set up allowing users to calculate savings available by switching cards, which can be considerable if there is a large outstanding balance (see external links for some on-line services).

Because profit margins in the credit card industry can be quite high, credit providers often offer incentives such as frequent flier miles, gift certificates, or cash back (typically 1 percent) to try attract customers to their program.

A secured credit card is a type of credit card in which you must first put down a deposit between 100% and 200% of the total amount of credit you desire. Thus if the holder puts down $1000, he or she will be given credit in the range of $500$1000. This deposit is held in a special savings account. The owner of the secured credit card is still expected to make regular payment, as he or she would with a regular credit card, but should he or she default on a payment, the card issuer can deduct payments on the card out of the deposit. Secure credit cards are an advantage to anyone with, without, or with poor credit history. They are often offered as a means of rebuilding one's credit. Secured credit cards are available with both Visa and MasterCard logos on them.

As well as convenient, accessible credit, the cards offer consumers an easy way to track expenses, which is necessary both for monitoring personal expenditures and the tracking of work-related expenses for taxation and reimbursement purposes. They have now spread worldwide, and are offered in a huge variety of permutations with differing credit limits, repayment arrangements (some cards offer interest-free periods, while others do not but compensate with much lower interest rates), and other perks (such as rewards schemes in which points "earned" for purchasing goods with the card can be reclaimed for further goods and services).

In theory, some countries such as the United States limit the amount that a consumer can be held liable for fraudulent transactions with the intention to shift the liability to the merchant. In reality, however, merchants and credit card companies are always trying to hold the consumer liable.

The numbers found on credit cards have a certain amount of internal structure, and share a common numbering scheme.

The card number's prefix is the sequence of digits at the beginning of the number that determine the credit card network to which the number belongs. The card number's length is its number of digits.

The prefixes and lengths for the most common card types are:

Card Type Prefix(es) Length
American Express 34 or 37 15
BankCard 560561 16
Diners Club / Carte Blanche* 300305, and 38 14
Discover Card 6011,65006509** 16
JCB 3 16
JCB 1800,2131 15
MasterCard 5155, 36 14,16
Visa 4 13 or 16


*As of November 8, 2004, MasterCard purchased the domestic (US) Diner's Club bin range. Diner's Club International BIN range will remain (starting with 38), but the 36 bin range will now be processed as MasterCards.
**As of October 1st, 2005, Discover Bank will include a new BIN in the range of 650000650999.

In addition, the first 6 digits of the credit card number are known as the Bank Identification Number (BIN). These identify the institution that issued the card to the card holder.

Some credit card issuers choose to restrict the card numbers they issue to those which pass a checksum test, where the final digit of the card number is used to confirm the initial digits.

This has two benefits of preventing casual attempts to invent credit numbers (only one in ten will be valid), and also prevent mistakes when the card number is manually recorded. The checksum test for credit card numbers is the Luhn formula, described in Annex B to ISO/IEC 7812, Part 1.

American Express, in particular follows the following specific algorithm:

First 4 numbers, country code, currency code and card type (ie charge or credit card)
Next 2, card type (ie gold, platinum)
Next digit, billing cycle
Next 4 digits, account number
Fourth from last, card issue (begins at 1 and will go up if it's replaced because the card is lost or stolen)
Next two, card issued under the account (ie if there are additional card holders. begins at 00 and increments)
Last number, Luhn-10 check digit (used for verification)

Check out Savings Service among following banks:

  •  Bank of America
  •  Bank One
  •  Chase Bank
  •  CitiBank
  •  Union Bank of California
  •  US Bank
  •  Washington Mutual Bank
  •  Wachovia Bank
  •  Wellsfargo Bank



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