What is Credit Card? Meaning Definition Size Anatomy

What is Credit Card? Meaning

Before we proceed to understand what is credit card? First let's clarify the simple meaning of some essential prerequisite terms.

In general, and with respect to the context of this article,

1. Credit means to borrow something from someone. E.g. to borrow money from a bank.
2. Card is a small flat object made from a laminated plastic sheet and other materials.
3. Cardholder is someone (either an individual or a company) to whom a card is issued (authorized to use) and who has an obligation (liability) to remit (pay) all necessary financial borrowings made on his card.
4. ISO is an abbreviation of International Organization for Standardization.
5. IEC is an abbreviation of International Electrotechnical Commission.
6. NBFC is a short-form of Non-Banking Financial Company.
7. ISO/IEC 7810 is an international standard that specifies (sets or defines) physical characteristics like size, thickness, etc. for identification cards.
8. ISO/IEC 7811 is a set of nine standards, i.e. from 7811-1 to 7811-9 that specifies traditional data recording techniques to be used on the magnetic stripe of ID-1 format identification cards.
9. 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.
10. ISO/IEC 7813 is 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.
11. Embossing implies making raised numbers and/or letters on an identification card.
12. Checksum is a single digit generally added to the end of a credit card number to check authenticity of a credit card.
13. Credit Limit is the maximum amount up to which a lending entity (e.g. bank or NBFC) can lend (give) money to its customers.

Credit limit is further divided as follows:

Image Credits © Moon Rodriguez.

1. Cash's withdrawal limit is the maximum amount of cash that can be withdrawn through a credit card.
2. Credit transaction limit is the maximum limit for all credit transactions (of purchases) that can be done through a credit card.

Usually, the cash withdrawal limit is less than the credit transaction limit.

We have just finished discussing the essential introductory part of this article.

Now let’s move ahead to comprehend the meaning of term credit card and its related details.

Credit Card is a plastic card issued by any bank or non-banking financial company (NBFC) which is ready to lend money (i.e. give credit) to its customer or user.

Image Credits © Galib A.

Basically, credit card is a synthetic card made from a laminated plastic sheet and other materials like paints, magnetic stripe, microchip (IC), gelatine, hologram, etc.

Credit card entitles (i.e. authorizes) the customer to buy goods and services from merchants, traders and other parties, based on the credit sanctioned to him (customer, who is a credit cardholder).

Credit card shall be used within a prescribed credit limit. This limit is based on the earning capacity and creditworthiness of a credit card holder as communicated (settled) by entity (for e.g. a Bank or NBFC) issuing it to its customer.

Credit Card 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 credit card, customer promise for the re-payment of credit-card transactions executed by him. Such re-payment of credit along with interest (as applicable) shall be paid to the bank or NBFC at a later agreed (contracted) date. Generally, re-payments along with interest (as applicable) are made either after a period of 30-45 days or are done on a monthly billing basis.

Definition of Credit Card

The three definitions of a credit card are as follows:

1. Credit card is a laminated plastic card issued by a bank or non-banking financial company (NBFC) giving the credit card holder a preference to borrow funds on a short-term basis. The bank or NBFC issuing credit card impose an interest for lending short-term finance to the credit card holder. Interest is generally charged either after a month or 30-45 days later, once credit-card transactions have occurred. The credit card limit is pre-communicated in written correspondence to the credit card holder.
2. Credit card is a facility provided by the banking 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 (sale).
3. Credit card is a suitable alternative for cash payment or credit payment or deferred (instalment) payment. It is used to execute those transactions which are compiled through electronic devices like a credit-card swapping machine, computer with internet facility, etc.

Size of Credit Card

The standard average size of a credit card issued by any bank or NBFC has following dimensions:

1. Height : The credit card has a height of 2.125 inc or 53.98 mm or 5.4 cm.
2. Width : It has a width of 3.370 inches or 85.60 mm or 8.5 cm.
3. Thickness : It has a thickness of 0.030 inch or 0.76 mm or 0.076 cm.
4. Edges : The four corners or edges of credit card are rounded with a circle of radius (r) measuring 0.125 inch or 3.18 mm or 0.318 cm.

Image Credits © Moon Rodriguez.

The above measurements or sizes or dimensions are averages of the maximum and minimum values defined for cards using ID-1 format of ISO/IEC 7810.

The 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-cum-Debit Cards, Credit Cards, etc. These cards 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 card issuing entity to another.

Anatomy of Credit Card

The anatomy of a credit card can be studied by analyzing its front and back side.

Image Credits © Moon Rodriguez.

Figure 1. Sample image of face or front side of a credit card.

Image Credits © Moon Rodriguez.

The face or front side of a credit card has details as follows:

1. Logo or symbol of a credit card issuing entity,
2. Credit card payment processor’s logo,
3. Hologram (3D Image),
4. Expiration date,
5. Cardholder's name,
6. Credit card number,
7. Individual account identifier number,
8. Issuer identifier number (IIN),
9. Embedded microchip,
10. Major industry identifier (MII),
11. Issue Date, and
12. Bank identification number (BIN).

Figure 2. Sample image of rear or back side of a credit card.

Image Credits © Moon Rodriguez.

The rear or back side of a credit card has details as follows:

1. Card security code or card verification number,
2. Magnetic stripe,
3. Signature panel, and
4. Other information.

These details present on the front and back side of a credit card are explained as follows:

1. Logo of issuing entity

Logo of issuing entity (either a bank or NBFC) is a unique graphic mark. It is an emblem of the entity which issues a credit card in order to lend money to its customers. The main purpose of such a logo is to ease and aid instant public recognition of the issuer entity. It is a symbol which helps people quickly identify the name of the issuer bank or NBFC of credit card.

2. Card payment processor’s logo

Generally, an issuing bank issues a credit card in collaboration with some payment processing company. To indicate this tie-up, bank on its issued credit cards also puts (mentions) a logo of its partnered card payment processor. This logo helps a credit card holder (user) to quickly identify which payment processor will process and compile his card’s transactions. This logo also helps a card holder to choose an appropriate payment processor while shopping and filling payment forms.

Some leading card payment processors are:

1. Visa,
2. MasterCard,
3. Discover,
4. American Express (AMEX), and
5. Japan Credit Bureau (JCB).

3. Hologram

A hologram is a 3D image either of an object, individual or some symbol that has been projected and captured on a 2D flat surface. It's mainly used as a seal of originality. It helps to authenticate a genuine brand from counterfeit one.

Similarly, in case of credit cards, a hologram helps to distinguish an original credit card from fake or dummy credit cards. It acts as one of the security measures to avoid and/or minimize forgery.

4. Credit card number

Credit card number is a long unique number assigned to a card. Often, it is embossed (raised) on the face (front-side) of a credit 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 16-digits long and is grouped in four sets with four digits in each set.

An ISO/IEC 7812-1 card numbering system consists of:

1. Major Industry Identifier (MII) digit value,
2. Bank Identification Number (BIN) now replaced with Issuer Identifier Number (IIN),
3. Individual Account Identifier, and
4. Checksum or Check Digit.

These are explained in the following paragraphs.

First single-digit (from left) of a credit card number is a Major Industry Identifier (MII) digit value. This MII digit value or number signifies the category or type of the entity that issued a credit card.

Note: Please click on the image under section Anatomy of Credit Card to get a zoomed preview and find out yourself where exactly is MII digit value located on it.

Use table below to identify which MII digit represents which issuer category.

Image Credits © Wikipedia.

First set of four-digits (which 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 credit card number and is located on the front-left side of a credit card.

The first six digits of the credit card number (including the single MII digit value) represents an Issuer Identifier Number (IIN) of a card issuing entity, which 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. 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 second last position, i.e. from 7 to (n-1) makes an Individual Account Identifier. Here, n equals the total number of digits found in a credit card number.

For e.g., if n=16, then the individual account identifier number would start from 7 to (16-1) i.e. from seventh position to fifteenth position. The individual account identifier number is variable in length and can reach up to a maximum of 12-digits.

Final or 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 credit card number that helps to verify (confirm) its accuracy and/or validate its authenticity (i.e. genuineness). Most credit card numbers encoded with a check digit use a LUHN Formula which is also referred as LUHN Algorithm or a MOD 10 method.

Thus, ISO/IEC 7812-1 credit card numbering system gives details on the industry type, of an issuing entity, customer’s information, check digit, etc.

5. Expiration date

The expiration date of a credit card is the last date until which a card remains valid and can be used. This last date of validity is also referred as VALID THRU which is read as valid through. It uses a MM/YY date format where MM implies a Month and YY stands for a Year.

For e.g., 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 credit card will get expired and lose its usability on 1st January 2023.

6. Cardholder name

The 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, or a firm, or an organization holding the account.

To complete online / internet transactions, it is mandatory that name on the credit card must match the credit cardholder’s name.

7. Embedded microchip

Embedded microchip is usually located on the front side of a credit card. It is an electronic storage device which is commonly known as a semiconductor memory. It acts as an enhanced protection shield of a credit card that safely stores confidential credentials of a cardholder. These 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 decrypt and misuse it intentionally. Embedded microchip 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

The issue date of a credit card is the starting date since when a card becomes valid and gets ready to be used by the cardholder. This starting date of card's validity is also referred as VALID FROM. As like an expiration date, issue date too uses a MM/YY date format where MM implies a Month and YY stands for a Year.

For e.g., if 01/15 is mentioned on a credit card, then this date signifies that the validity of card 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 credit card became valid and got ready to be used on 1st January 2015.

9. Magnetic stripe

Magnetic stripe is also sometimes called as magstripe or swipe card. Generally, it is located on the back side of a credit card. It comes in three different colours 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 ISO/IEC 7811 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 credit cardholder's account. In other words, these tracks contain details of a credit card number, name of the cardholder, its expiry date and the issuer’s country code.

1. Track 1 mostly contains record of an alphabetical value which is always a credit cardholder’s name and his related information.
2. Track 2 of magnetic stripe has CVV1, CVC1, CAV1 and CID code of VISA, MasterCard, JCB, American Express, respectively, encoded on it.
3. 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. Card security code

Card Security Code is also referred as a Card Verification Number / 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 credit card. This prevents an unauthorized card access and minimizes online credit card related 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. Here, 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. Similarly, 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 on the credit card where a cardholder must put or sign his authorized signature. This signature must be signed by a cardholder with any good permanent marker pen. For this purpose, a pen with dark-coloured ink preferably blue or black must be used.

Signature panel is an added feature for the customization and security of a credit card. Signature on the credit card allows the merchants and/or traders to validate the authenticity of person using a card. It helps them to cross check whether the physical signature in the transaction invoice matches with the authorized signature signed on the back of a credit card.

It is mandatory that signature panel must be signed properly else the credit card is not considered as a valid one. This message is generally warned on the top right corner of a signature panel with printed statement like, NOT VALID UNLESSS SIGNED.

12. Other information

Some additional useful information is printed on the back side of a credit card. Usually, it contains details about the service disclaimer, mentions an official address of a card issuing entity, and also gives a toll-free telephone number to render card-related customer service.

1. Service disclaimer acts like a legal acknowledgement (acceptance) for an agreement on the terms and conditions between a credit card issuing entity and cardholder.
2. 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 credit card, then in such a case, this address helps a possessor to surrender the lost card to its original issuer.
3. Customer service is generally available via an official toll-free telephone number. This service helps a credit card holder (customer) to get his card-related queries resolved, seek an immediate additional guidance or help regarding usage of a credit card, register complaints, alert frauds, and also to contact an issuer on various important matters arising on a day-to-day basis.

Google Article Translation