A credit card is a type of payment card — a small plastic card embedded with payment technology. It enables a cardholder to buy goods or services without cash. Credit cards are typically issued by a bank or financial institution (issuer) on behalf of a card network (Visa, Mastercard, etc.).
A credit card is a revolving line of credit. In simple terms, a credit card is basically a loan that is issued and repaid each month. The issuing bank and cardholder agree to terms — the amount of money that can be borrowed each month, the timeline for repayment, interest rates, and any applicable fees. The cardholder makes purchases with the borrowed funds and repays the amount plus any applicable fees by the due date.
NOTE
Credit cards and debit cards serve the same purpose. They both allow cardholders to make purchases without cash. However, where the funds come from differs slightly. Credit cards borrow funds from the bank which are later repaid. Debit cards withdraw funds from the cardholder’s bank account in real time. If the bank account doesn’t have sufficient funds, a purchase will be declined.
Because of their ease of use and buyer protections, credit cards are widely used for online and recurring payment plans.
If your business wants to accept credit cards as a form of payment, you’ll need a merchant account. AltoPay provides merchant accounts to online businesses of any size in any industry.
For more than a decade, Jessica Velasco has been a thought leader in the payments industry. She aims to provide readers with valuable, easy-to-understand resources.
