Before we proceed to understand comprehensively what is a credit card? First lets clarify the simple meaning and/or glossary of some basic terms.
16 important basic terms and/or points related to credit card are as follows:
- Credit means to borrow something from someone, for example, to borrow money from a bank.
- Card is a small flat object made of a laminated plastic sheet and other materials.
- Cardholder is someone to whom a card is issued and who has an obligation to remit all necessary financial borrowings made on his card. The cardholder may be an individual or organisation. Here, issued means authorized to make use of card. The word ‘obligation’ means a moral or legal liability to do something. Remit implies to pay back the money.
- ISO is an abbreviation of International Organization for Standardization.
- IEC is an abbreviation of International Electrotechnical Commission.
- NBFC is a short-form of Non-Banking Financial Company.
- ISO/IEC 7810 is an international standard that specifies (sets or defines) physical characteristics like size, thickness, etc. for identification cards.
- ISO/IEC 7811 is a set of nine standards ranging from 7811-1 to 7811-9. It specifies traditional data recording techniques to be used on the magnetic stripe of ID-1 format identification cards.
- ISO/IEC 7812-1 is an international standard that specifies a card numbering system for identification cards. It is used to identify a card issuing entity like a bank or NBFC.
- ISO/IEC 7813 is also an international standard that specifies the data structure and data content of Track 1 and Track 2. These tracks are located on the magnetic stripe of an identification card and are used to start (begin or initiate) financial transactions.
- Embossing is a process in which raised numbers, letters, figures, etc., are embossed (i.e. molded or craved) on an identification card.
- Checksum is a single-digit generally added at the end of a credit card number to check (validate) the authenticity (genuineness) of it.
- Credit Limit is the maximum amount up to which a lending entity such as a bank or NBFC can lend (give) money to its customers. It is further divided into two main types, viz., cash withdrawal limit and credit-transaction limit.
- Cash-withdrawal limit is the maximum amount of cash that can be withdrawn through a credit card.
- Credit-transaction limit is the maximum limit set on credit transactions (of purchases) that can be done through a credit card.
- Usually, cash withdrawal limit is less than the credit transaction limit.
We have just finished discussing the essential glossary (introductory part) of this article. Now let's move ahead to comprehend the meaning of credit card.
What is Credit Card? Meaning
To know, what is a credit card? First lets see how it looks like. Image © Galib.
The meaning of credit card is broadly covered in following six points:
- Credit card is a plastic-card issued by a bank or non-banking financial company (NBFC) ready to lend money (give credit) to its customer.
- Basically, it is a synthetic-card made from a laminated plastic sheet and other materials like paints, magnetic stripe, microchip (IC), gelatin, hologram, etc.
- It entitles (authorizes) the customer to buy goods and services from merchants, traders and other parties, based on credit sanctioned to him (customer, who is a cardholder).
- It shall be used within a prescribed credit limit. This limit is based on the earning capacity and creditworthiness of a cardholder as communicated (settled) by an entity (bank or NBFC) issuing it to its customer.
- It gives a customer a suitable choice to plan payments for goods and services that may be most necessary to him on a day-to-day basis.
- By using it, customer promises the repayment of credit transactions executed by him. Such a repayment along with interest (as applicable) shall be paid to bank or NBFC at a later agreed (contracted) date. Generally, repayments along with an applicable interest are made either after a period of 30-45 days or are done on a monthly billing basis.
Definition of Credit Card
Credit card can be defined in many ways with different senses. It is difficult to give a perfect definition of credit card. Following statements are attempts to help you derive its narrow and broad meaning.
1. In General sense,
Credit card is a suitable alternative for cash payment or credit payment or deferred (installment) payment. It is used to execute those transactions which are compiled through electronic devices like a card swapping machine, computer with internet facility, etc.
2. In a Financial perspective,
Credit card is a facility provided by a bank or non-banking financial company (NBFC) which gives its customer a preference to have a short-term borrowing of funds usually at the point of transaction (while purchasing something or carrying out sale).
3. In terms of Business,
Credit card is a laminated plastic card issued by a bank or non-banking financial company (NBFC) to give its cardholder a preference to borrow funds on a short-period basis. Interest is imposed for lending short-term finance to the cardholder. This interest is generally charged either after a month or 30-45 days later, once credit-card transactions have occurred. The card limit is pre-communicated in written correspondence with cardholder.
Size of Credit Card
Standard size of credit card issued by a bank (or NBFC) is depicted below.
The average dimensions of a credit card in inches, mm and cm:
- Credit card has a height of 2.125 inches (53.98 mm or 5.4 cm).
- It has a width of 3.370 inches (85.60 mm or 8.5 cm).
- Its thickness is of 0.030 inch (0.76 mm or 0.076 cm).
- Its four corners (edges) are rounded with a circle of radius (r) measuring 0.125 inch (3.18 mm or 0.318 cm).
The above measurements (sizes or dimensions) are averages of the maximum and minimum values defined for credit cards using ID-1 format of ISO/IEC 7810.
ISO/IEC 7810 is an international standard that specifies physical characteristics like size, thickness, etc. for identification cards.
The identification cards used for banking purposes include ATM, credit, debit cards, etc. These are helpful to carry out quick financial transactions on a day-to-day basis.
Though ID-1 format of ISO/IEC 7810 international standard is widely followed globally, variations may rarely occur from country to country and even from one credit card issuing entity to another.
Anatomy of Credit Card
The anatomy of credit card can be studied by analyzing its front & back side.
Image credits © Prof. Mudit Katyani.
1. Sample image of face or front side of a credit card.
Image credits © Prof. Mudit Katyani.
The front side of a credit card shows following details:
- Logo of issuing entity.
- Logo of payment processor.
- Expiration date.
- Cardholders name.
- Card number.
- Individual account identifier number.
- Issuer identifier number (IIN).
- Embedded microchip.
- Major industry identifier (MII).
- Issue date
- Bank identification number (BIN).
2. Sample image of rear or back side of a credit card.
Image credits © Prof. Mudit Katyani.
The back side of a credit card shows following details:
- Security code (card verification number).
- Magnetic stripe.
- Signature panel.
- Additional information.
Now lets discuss all details of credit card.
1. Logo of issuing entity
Logo of an issuing entity (which is either a bank or NBFC) is a unique graphic mark.
The features of logo of an issuing entity:
- Logo is an emblem of the entity which issues a credit card in order to lend money to its customers.
- Its main purpose is to ease and aid instant public recognition of the issuer.
- Its a symbol which helps people quickly identify the name of bank or NBFC that has issued a credit-card.
2. Logo of payment processor
Generally, a bank issues a credit card in collaboration with some payment processing company. To indicate this tie-up, bank on its issued cards also puts (mentions) a logo of its partnered card payment processor.
Payment processor logo helps a cardholder (user) to identify which payment processor will process and compile his credit cards transactions. It also helps him to choose an appropriate payment processor while shopping and filing payment forms.
Some leading credit card payment processors:
- American express (AMEX), and
- Japan credit bureau (JCB).
Hologram is a 3D image either of an object, individual or some special symbol that has been projected and captured on a 2D flat surface.
Important reasons why a hologram is used on credit card:
- Hologram is mainly used as a seal of originality.
- It helps to authenticate a genuine brand from counterfeit one.
- It aids in distinguishing an original credit card from fake (dummy) cards.
- It acts as one of the security measures to avoid and/or minimize forgery.
4. Card number
Card number is a long and unique number assigned to a credit card. Often, it is embossed (raised) on the face (front-side) of a card. Generally, it is 16-digits in length and can be extended up to a maximum limit of 19-digits. An ISO/IEC 7812-1 card number is typically sixteen digits long and is grouped in four sets with four digits in each set.
An ISO/IEC 7812-1 card numbering system consists of:
- Major industry identifier (MII) digit value,
- Bank identification number (BIN) now replaced with an issuer identifier number (IIN),
- Individual account identifier, and
- Checksum or check digit.
First single-digit (from left) of a credit card number is a Major Industry Identifier (MII) digit value. MII digit value or number signifies the category or type of the entity that issued a card.
Note: please click on the image under section Anatomy of Credit Card to get a zoomed preview and find out where exactly is MII digit value located.
Refer table below to identify which MII digit represents which issuer category.
Image credits © Wikipedia.
First set of four-digits (which also includes MII digit value) of a credit card number is referred as Bank Identification Number (BIN). It is printed in small fonts just below the card number and is located on its front-left side.
First-six digits of a credit card number (including the single MII digit value) represents an Issuer Identifier Number (IIN) of a card issuing entity. It is required to operate in the global, inter-industry and/or intra-industry interchange.
As per ISO/IEC 7812-1, BIN is now replaced by IIN.
Following paragraph explains the reason why IIN replaced BIN.
With the rising demand and recognition of credit cards, the financial institutions opined the replacement of BIN with IIN. The purpose of such replacement was to cover wider areas of financial services, to bring various service providers under one roof and also to ease their identification. The IIN number consists of initial six digits when compared to BIN, which consists of starting four digits only. The incorporated change results in more prompt and proper assistance to compile and execute the credit card processing.
Digits starting from seventh position up to the second last position (7 to (n-1)) makes an Individual Account Identifier. Here, n equals the total number of digits found in a credit card number.
For example, if n=16, then the individual account identifier number would start from 7 to (16-1) i.e. from seventh position to the fifteenth position.
The individual account identifier number is variable in length and can reach up to a maximum of 12-digits.
Final (last or ending) single-digit of a credit card number is known as a Check Digit. It is also called as a Checksum.
As per ISO/IEC 7812-1, the check digit or checksum is a digit added to the end of a card number that helps to verify (confirm) its accuracy and/or validate its authenticity (genuineness). Most card numbers encoded with this digit use a LUHN Formula which is based on LUHN Algorithm or a MOD-10 method.
Thus, ISO/IEC 7812-1 credit card numbering system gives details on; the type of industry, of an issuing entity, customers information, check digit, etc.
5. Expiration date
Expiration date of a credit card is the last date until which a card remains valid and can be used.
This final date of validity is also referred as VALID THRU and is read as valid through.
It uses a MM/YY date format where MM implies a Month and YY stands for a Year.
For example, if 12/22 is mentioned on a credit card, then it is valid until 12th month of year 2022 i.e. its VALID THRU date is December 2022. In other words, we can say that the card will get expired and lose its usability on 1st January 2023.
6. Cardholder name
Cardholder name is a given string of embossed or printed alphabets on a credit card. It either mentions first and last name of an individual or specifies the registered name of a company, firm, or an organization holding the account.
To complete online (the internet) transactions, it is mandatory that name on the credit card must match its cardholders name.
7. Embedded microchip
Embedded microchip is usually located on the front side of a credit card.
Following are important features of microchip:
- Microchip is an electronic storage device which is commonly known as a semiconductor memory.
- It acts as an enhanced protection shield of a card that safely stores confidential credentials of a cardholder. The credentials stored in an embedded microchip includes PIN (Personal Identification Number), details of a credit card issuing entity, etc.
- It provides a comprehensive security to prevent cloning or duplication of a credit card.
- It encrypts the sensitive data it stores. If hackers scan a credit card with some electronic spying device, then they will only fetch encrypted junk and not the original information that microchip contains. This encrypted scrap is almost useless to them as it is very difficult to decode and misuse it intentionally.
- It has a superior semiconductor memory and a good processing capacity.
Thus, it acts as a mandatory and essential security feature of a credit card.
8. Issue date
Issue date of a credit card is the starting date from when a card becomes valid and gets ready to be used by cardholder.
This starting date of cards validity is also referred as VALID FROM.
As like an expiration date, issue date also uses a MM/YY date format.
For example, if 01/15 is mentioned on a credit card, then its validity started from the 1st month of year 2015 i.e. its VALID FROM date is January 2015. In other words, we can say that the card became officially valid and got ready to be used on 1st January 2015.
9. Magnetic stripe
Magnetic stripe is also sometimes called as mag-stripe or swipe card. Generally, it is located on the back side of a credit card. It comes in three different colors viz., black, brown, and silver. It is a storage device and is further internally divided into three horizontal stripes known as Track 1, Track 2, and Track 3.
ISO/IEC 7811 is an international standard that specifies the traditional data recording techniques to be used on the magnetic stripe of identification cards like credit cards.
According to this standard, the data recording density on Track 1, Track 2, and Track 3 must be 210 bpi (bits per inch), 75 bpi, and 210 bpi, respectively. In other words, Track 1, Track 2, and Track 3 must be 8.27 bpmm (bits per mm), 2.95 bpmm, and 8.27 bpmm, respectively.
The data recorded on Track 1 and Track 2 of the magnetic stripe contains details of the cardholders account. In other words, these tracks contain details of a credit card number, name of the cardholder, its expiry date and the issuers country code.
- Track 1 mostly contains record of an alphabetical value which is always a credit cardholders name and his related information.
- Track 2 of magnetic stripe has CVV1, CVC1, CAV1 and CID code of Visa, MasterCard, JCB, American Express, respectively, encoded on it.
- Track 3 is either non-existent or empty or may consist of some supplementary information about the credit cardholder and is hardly used for some validation process.
Now with continuous improvement in the technology, magnetic stripes are getting obsolete as new contact-less credit cards are emerging in the market.
10. Security code
Security Code is also referred as a card verification number or value. It is unique from any other number found on a credit card. Generally, it is a 3-digits number, but sometimes it may even be a 4-digits number.
Card security code gives an additional layer of security to the credit card. It helps to check and confirm the physical accessibility of the card. This prevents an unauthorized card access and minimizes online frauds.
The card security code is named and abbreviated differently by various card payments processing companies. Visa, MasterCard, American Express and JCB call it as CVV2, CVC2, CID, and CAV2, respectively.
- CVV2 is an abbreviation of card verification value two.
- CVC2 is an abbreviation of card validation code two.
- CID stands for a card identification number.
- CAV2 can be expanded as card authentication value two.
In case of Visa, MasterCard and JCB, card security code is a 3-digits number and is generally printed on the rear or back side of a credit card.
However, in case of American Express, it is a 4-digits number which is usually printed on the face or front side of a credit card.
11. Signature panel
Signature panel is a rectangular space located on the back side of a credit card. As it name says, it is a reserved place where a cardholder must put or sign his authorized signature. It must be signed by the holder with a good permanent marker pen. For this purpose, a pen with dark-colored ink preferably blue or black must be used.
Following are important features of having a signature panel:
- It is an added feature for customization and security of a credit card.
- It allows the merchants and/or traders to validate the authenticity of person using a credit card. It helps them to cross check whether the physical-signature in the transaction invoice matches with the signature on the back of a card.
It is mandatory that signature panel must be signed properly else the credit card is not considered as a valid one. Generally, this message is warned on its top-right corner with printed statement like,
NOT VALID UNLESS SIGNED.
12. Additional information
Additional information is also printed on the back side of a credit card. Mainly, it contains useful details about; the service disclaimer, official address of card issuing entity, and toll-free telephone number for customer service.
- Service disclaimer acts like a legal acknowledgement (acceptance) for an agreement on the terms and conditions between a credit card issuing entity and the cardholder.
- Address of an issuing entity gives official mailing or contact information of the bank or NBFC that issued a credit card to its customer. If anyone is in possession of a lost and found card, then in such a case, this address helps a possessor to surrender the lost card to its original issuer.
- Customer service is generally available via an official toll-free telephone number. This service helps a cardholder to get his card-related queries resolved, seek an immediate additional guidance (help) regarding usage of credit card, register complaints, alert frauds, and also to contact an issuer on various important matters arising on a day-to-day basis.