What is a Bank Card?
A bank card is a plastic card issued by a financial institution that allows the user to make purchases witheither borrowed from or held at that financial institution.
How Does a Bank Card Work?
The most common bank cards are
When a consumer uses a bank card to make a purchase, he is essentially authorizing the card (the bank) to pay the merchant on his behalf. The merchant must verify that the card is the user's by swiping the magnetic strip on the back of the card or obtaining identification in other ways (via a personal identification number (PIN) or other identification). Merchants generally like to take bank cards because they are almost immediately paid by the card issuer. Merchants must pay a fee to the card processing company for each transaction, however.
Most bank cards have limits, meaning that there is a maximum amount the user can withdraw or borrow using the card. The issuer determines the limit based on the user's account balance, overdraft protection, credit rating, and/or history.
Credit cards are one form of bank card that requires the user to pay his or her balance in full, usually on a monthly . If the user does not pay the balance in full, the issuer adds interest to the balance, and this interest compounds for as long as the balance is outstanding. As with credit limits, the user's credit rating and credit history often influence the interest rate on the card, and in some cases, the issuer can raise the interest rate.
Many bank cards also charge a yearly fee, late payment fees, fees for going over a limit, cash-advance fees, and fees for conversion into other currencies.
Why Does a Bank Card Matter?
Bank cards allow users to avoid carrying, earn frequent-flier miles, or earn other "rewards." They are usually accepted around the world. In many cases, the cardholder can get advances through ATMs as well. However, interest rates on cards are almost always higher than the amount typically charged for personal , and consumers with little impulse control often rack up huge balances that they can't repay. Many cardholders also find it easier to burn through their , and they frequently underestimate the time and it takes to pay down balances, especially when interest rates are high and minimum payments are low. It is also important to that bank card numbers are often stolen; therefore, it important for users to protect their privacy and to check their reports frequently.