Understanding Credit Card Transactions

Have you ever pulled out your credit card to make a purchase? Did you ever stop to think how that transaction worked or was processed? As soon as you take out your credit card and hand it to the retailer for a purchase you set in motion a number of transactions. The merchant will run your credit card through a credit card terminal for authorization or approval of the transaction. A receipt is generated which has the dollar amount of your purchase and a convenient place for you to sign.

When you sign your receipt you are giving your promise that you will pay for the merchandise you purchased. At the end of the business day the retailer or the merchant will take your receipt copy along with others and deposit them into their bank. In turn the merchants account is then credited for the dollar amount of your purchase while at the same time the transaction amount is sent to visa or master card electronically.

Visa or master card will then process the transaction which ultimately credits the merchant's bank and simultaneously debits the car issuer's account. Visa or master card will then take it upon themselves to electronically notify the card issuer that the transaction has gone through and been processed.

At the point in time the customer is sent a bill by the card issuer for the purchase amount. Once you receive your statement it is a good idea to pay off the entire amount because this helps you to avoid finance charges or late charges. If you get a cash advance on your credit card you cannot avoid finance charges because they begin to accrue the same day the transaction takes place. Finance charges will accrue up until the day that payment is received in full. If you carry a balance over from one month to the next you will incur finance charges. Credit card companies for the most part will use different methods for calculating finance charges.

Every time a customer uses their credit card account merchants are charged a fee. Some merchants will require you to purchase a certain amount with your credit card so that it will be worth their while to get accessed that fee. There are merchants that will install a $10 or $15 minimum purchase if you want to use a credit card. Some gas stations will also charge you less for your gas purchase if you pay with cash instead of using your credit card. This saves you money at the pump and saves the retailer money because you did not use your credit card.