What is a credit card?
Physically, a credit card is a piece of plastic, 3-1/8” x 2-1/8”, that carries information that allows you to make purchases now, and pay for them later. This is gerally a swipe card, which offers you differnt types of benefits in shopping. Your Card can be used in two ways. One is for Purchasing things and other is to draw cash from ATM centers or Cash Points. Obviously there are also two types of limits for your card.
1. CREDIT LIMIT: This the amount up to which you can purchace your goods from traders/shops. This is higher than the other limit. Some banks indicate this including your cash limit. This limit depends on your security deposit. In some cases this depends on your salary if the card is a fecility due to your salary account in that perticular bank.
2. COST LIMIT: This is a bit less than the credit limit. This is the amount that can be drawn from ATM centers or Cash Points. This limit also depends on your security deposit.
How does a Credit Card Work?
The way how a credit card work is really interesting. The stripe on the back of a credit card is a magnetic stripe. The magstripe is made up of tiny iron-based magnetic particles in a plastic-like film. Each particle is really a very tiny bar magnet about 20 millionths of an inch long.

The Front side of a Credit card is shown here.
The numbers indicate...
1.Issuing Bank name and Logo
2.EMV chip(Europay MasterCard Visa)
3.Hologram of the Card Brand (VISA/MASTERCARD)
4.Credit Card Number.
5.Card Brand Logo.
6.Expiry date of the card.
7.Name of the card holder.
The image of the Card from back side is shown here.

The numbers indicate.
1. Magnetic Strip.
2. Card holders signature strip.
3. Card Security Code.
What do all those numbers mean?
Electronically, a credit card is a pretty complex device. Everything on a credit card is a code that stands for a specific bit of information. And there’s a ton of it – some that you can see, some that’s hidden. On the face of it, you’ll find a series of numbers. While these numbers as a group, identify you, individually they identify the financial institution you deal with – the one that issued you the card.
Let us see what they stand for.

Almost all credit card companies use a standardized system for tracking and billing their customers’ transactions. Since there are so many financial institutions using this system, to avoid confusion between credit card companies, the numbers on your credit card identify which institution “owns” each transaction. For example, the first few digits identify the financial institution, the next few are your account number, and the last digit is what’s called a “check digit”.
A check digit is an interesting security item. The process of checking your credit card number is done by multiplying the sum of the odd digits by 3, which is then added to the sum of the even digits which, when added to the check digit, will equal a multiple of 10. Amazing Technology isn`t it?
The magneticstripe can be Foematted because the tiny bar magnets can be magnetized in either a north or south pole direction. The magneticstripe on the back of the card is very similar to a piece of cassette tape fastened to the back of a card.Instead of motors moving the tape so it can be read, your hand provides the motion as you "swipe" a credit card through a reader.
There are three tracks on the magstripe. Each track is .110-inch wide. The ISO/IEC standard 7811, which is used by banks, specifies:
Track one is 210 bits per inch (bpi), and holds 79 six-bit plus parity bit read-only characters.
Track two is 75 bpi, and holds 40 four-bit plus parity bit characters.
Track three is 210 bpi, and holds 107 four-bit plus parity bit characters.
Generally we use track one and two only. Track three is a read/write track (that includes an encrypted PIN, country code, currency units, amount authorized), but its usage is not standardized among banks.
There are three basic methods for determining that your credit card will pay for what you're charging:
1.Merchants with few transactions each month do voice authentication, using a touch tone phone.
2.Electronic data capture (EDC) magstripe card swipe terminals are becoming more common -- so is having you swipe your own card at the checkout.
3.Virtual terminal on the Internet.
What happens when you "SWIPE" ?
This is how it works: After you or the cashier swipes your credit card through a reader, the EDC software at the point of sale (POS) terminal dials a stored telephone number via a modem to call an acquirer. An acquirer is an organization that collects credit authentication requests from merchants and provides a payment guarantee to the merchant.
When the acquirer company gets the credit card authentication request, it checks the transaction for validity and the record on the magstripe for:
*Merchant ID
*Valid card number
*Expiration date
*Credit card limit
*Card usage
Single dial-up transactions are processed at 1200-2400 bps, while direct Internet attachment uses much higher speeds via this protocol. In this system, the cardholder enters a personal identification number (PIN), using a keypad.
The merchant then enters the amount that is to be charged on your card using the Keypad. Then the charge slip of transaction is printed by the magstripe reader. The charge slip is to be signed by the card kolder to make the trasaction valid.
How is your credit card checked for validity?
When you go to use your credit card, there’s a process that needs to be followed to make sure that it really is your card, and that you haven’t overspent your limit. The smaller merchants will probably do this by phone, although technology has moved into most small establishments, replacing the phone calls with more modern technology. This technology comes in the form of an EDC (electronic data capture), which does exactly what it’s name says it does – it captures your data and sends it to the central system. EDCs are the standard today.
With the rapid growth of online shopping, your card needs to be validated online, as well. This becomes a little more complicated. But virtual terminals are being developed, enabling safe and secure transactions over the Internet.
How do you know your credit card information is secure?
When you use your card, a lot of your personal information is being sent through cables and cyberspace to the companies that process your transactions. One of the newest ways of protecting that information from identify theft, is to use a “smart” card. A smart card has a computer chip embedded in it and requires you to identify yourself every time you use the card. As soon as you’ve been positively identified, the chip in the card encrypts, or converts into code, all the information related to your transaction.
SMART CARDS
The low security of the credit card system presents countless opportunities for fraud. This opportunity has created a huge black market in stolen credit card numbers, which are generally used quickly before the cards are reported stolen.
The goal of the credit card companies is not to eliminate fraud, but to "reduce it to manageable levels", such that the total cost of both fraud and fraud prevention is minimized. This implies that high-cost low-return fraud prevention measures will not be used if their cost exceeds the potential gains from fraud reduction.
Most Internet fraud is done through the use of stolen credit card information which is obtained in many ways, the simplest being copying information from retailers, either online or offline. There have been many cases of crackers obtaining huge quantities of credit card information from company databases. It is not unusual for employees of companies that deal with millions of customers to sell credit card information to criminals.

Despite efforts to improve security for remote purchases using credit cards, systems with security holes are usually the result of poor implementations of card acquisition by merchants. For example, a website that uses SSL to encrypt card numbers from a client may simply email the number from the webserver to someone who manually processes the card details at a card terminal. Naturally, anywhere card details become human-readable before being processed at the acquiring bank is a security risk. However, many banks offer systems such as ClearCommerce, where encrypted card details captured on a merchant's webserver can be sent directly to the payment processor.
Controlled Payment Numbers are another option for protecting one's credit card number: they are "alias" numbers linked to one's actual card number, generated as needed, valid for a relatively short time, with a very low limit, and typically only valid with a single merchant.
The Federal Bureau of Investigation is the agency responsible for prosecuting criminals who engage in credit card fraud in the United States, but they do not have the resources to pursue all criminals. In general, they only prosecute in cases exceeding US$5,000 in value. Three improvements to card security have been introduced to the more common credit card networks but none has proven to help reduce credit card fraud so far. First, the on-line verification system used by merchants is being enhanced to require a 4 digit Personal Identification Number (PIN) known only to the card holder. Second, the cards themselves are being replaced with similar-looking tamper-resistant smart cards which are intended to make forgery more difficult. The majority of smartcard (IC card) based credit cards comply with the EMV (Europay MasterCard Visa) standard. Third, an additional 3 or 4 digit code is now present on the back of most cards, for use in "card not present" transactions. See
CVV2 for more information.
The way a credit card-owner pays off his/her balances has a tremendous effect on his/her credit history. All the information is collected by credit bureaus. The credit information stays on the credit report for 7 years and for bankruptcies – for 10 years. There are no legal ways to change credit information to improve credit history. Bad credit score might question your trustworthiness for employers, landlords and banks.
Uses
*The main advantage is "Buy now Pay Later". The only thing you need to do after the purchase is just sign the charge slip and collect the customer copy of the charge slip.
*Some banks provide 0% intrest on credit transations for a lilmited period of time.
*Special Revards can be enjoyed. Some Banks provide in the form of cash points and other in the form of gifts.
Drawbacks
*People spend more because of the PAY LATER fecility.
*Lack of knowledge may cause mis-use of the card.
*Chances of OVER BILING due to online Autions or Transactions because of online hackers.
Caution
*Check for bill amount to match your shopping amount.
*Inform immidiately the loss of credit card to stop misuse of the card.
*Do not disclose the PIN number with your Card.