Every day, consumers make purchases using their credit cards. Whether we are renting a car or buying a book online or a new outfit at the mall, few of us think about what has to happen for a credit card transaction to take place or what happens after the transaction occurs.
There are three key processes involved in using a credit card—transaction authorization, handling disputes and potential fraudulent charges, and billing.
The transaction process begins once the merchant swipes your credit card at the cash register or you enter your credit card account number online. But what happens after that?
Step 1: You present or swipe your credit card at the cash register. If you are online, you enter your card account number and expiration date manually.
Step 2: The merchant’s terminal or computer system sends your credit card and other transaction information, as well as identifying information on the merchant, to a card processor. This card processor, in addition to providing other services, serves as a middleman between the issuing bank and the merchant.
Step 3: The card processor forwards the authorization request to the bank that issued the card. This issuing bank checks the card account for fraud and checks that the transaction amount will not cause the card holder to exceed his or her credit limit.
Step 4: Based on that information, the issuing bank grants or denies authorization for the transaction to go through and the card processor relays the authorization or denial back to the merchant.
Step 5: If the transaction receives authorization, you complete the transaction with the merchant and go on your way while the card processor handles the transfer of the funds related to the transaction to the merchant.
Although it seems complicated, this process takes only a few seconds in most cases.
Dealing with problems
But what if something goes wrong after your purchase?
One of the key benefits of using a credit card is protection from fraud and from having to pay for unacceptable goods.
If you receive incorrect or damaged merchandise or you are just unhappy with the quality of the goods you receive, you can initiate a chargeback on your card. In some cases, you may have up to three months to initiate a chargeback following a transaction.
When you initiate a chargeback, your credit card issuer deducts the amount of
the chargeback from the merchant’s account until the dispute is investigated and resolved. If the case is resolved in your favor, the charge will be removed from your card balance. If the merchant wins the dispute, the charge will remain on your account and the merchant will get back the amount of the chargeback.
If you suspect that your account has been compromised by fraudulent charges or that an account has been opened in your name without your knowledge (identity theft), you should immediately alert the card issuer involved so that the account can be closed and investigated.
Paying the bill
As you complete credit card transactions throughout the month, your credit card issuer is keeping records of those transactions so it can send you a statement at the end of the billing cycle (which usually lasts about 30 days). This statement provides a great deal of important information, including:
- Your account number, credit limit and how much of that credit limit is still available for use
- Your previous balance on the card
- Payments you have made since your last statement
- Your card balance as of the date the statement was issued
- Any finance charges added to your account since your last statement
- Your current required minimum payment
- The date your payment is due
- A summary of any rewards earned on the card
In addition, the statement will list your transactions during the last billing cycle, including a transaction description and the amount of the charge or credit. The transaction description should show the store or merchant’s name. If any of these transactions look unfamiliar, contact your card company to get more information. In some cases, the transaction description is simply unhelpful but, in other cases, there could be a fraudulent charge on the account.
On a payment coupon attached to the statement you will see your new balance on the account, the minimum payment required and the date that payment must be received by the card issuer. Many card issuers or your bank allow you to pay this bill electronically. However, if you pay by mail, you can detach this payment coupon and use the envelope provided in the statement to send in your payment.
Keeping tabs on your account and paying your bill on time are two of the most important ways to remain a happy card user.