Well, it’s a small piece of plastic with a magnetic stripe on the back, which appears to be the prerequisite to the happiness of all of mankind.

I jest, of course. But seriously, WHAT IS A CREDIT CARD?

In its simplest form, a credit card is a 2 1/4” x 3 3/8” piece of plastic (or carbon fiber/metal if you have a “black” card), which allows the card holder to purchase goods and services on the issuing financial institution’s good name. For example:

When I present my Chase Bank Visa card to a merchant or vendor, they KNOW that Chase will pay their bill, and Chase is reasonably certain that I will pay my bill to them; therefore, they accept my card as a form of payment. Voilà, instant commerce!

By convincing Chase Bank that I am “credit worthy”, they have agreed to let me purchase goods in their name, up to my credit limit, throughout the month. At the end of the month they will send me a bill of all my transactions, and expect me to pay some portion of the bill. If I do not pay the bill in full, they will charge me an exorbitant interest rate on the unpaid balance, and allow me to keep ringing up charges until they deem me not worthy for credit (I hit my credit limit, or stop making payments on my bill).

In its most simplified form, a credit card is a running tab kept by a bank, which allows me to open up many smaller tabs with any merchant or vendor that accepts my type of credit card. The bank sends me one bill for the total of all my smaller tabs, and then pays off the smaller ones on my behalf.

A credit card is the simplest and most efficient way to conduct consumer-to-business transactions.

Related Posts:
- How does a credit card work?