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Credit Card Basic - Introduction

  • JMaurya
  • Mar 27, 2023
  • 3 min read

Updated: May 18, 2023


A credit card is a plastic money issued by a bank, which helps you to earn some rewards when you spend through it and you can pay for all your spending in one go after 30 days of the billing cycle. This is the formal definition of a credit card which you can find out on any credit card-related site. But in this blog, I wanted to share information on how banks came up with this credit card idea and how they are benefiting from customers & merchants when users do a transaction on a merchant swipe machine or online.

Banks normally earn money when they sell loan products to customers and in these loans, if they can sell personal loans then they will get maximum interest. But ideally speaking selling personal loans is very difficult and if a bank cannot meet the loan target then their business will get affected. If we take the customer's perspective then the customer will go for a personal loan only in case of a difficult situation that he can't manage with his regular income or through his some saving which he has done for these difficult times. Normally customers will not go for a personal loan to buy some desired or luxury things as taking a loan in itself is a bigger task where he needs to pay a processing fee, verification, and get approval which takes around 2 to 3 days. In this period customer himself will change his mind to buy that product. So the bank was always facing difficulty in selling the personal loan.

But if the same is available in form of a card which can be carried with you all the time then there is a lot of chance that the customer might buy things which are not his need at that time like the latest gadget, new arrival clothes, going to a fancy restaurant and doing unplanned holiday. That's why banks give credit cards to their customer who has some regular income and just wait for customers to get into their loan trap.

As the consumer market is growing at full speed and due to competition among sellers, now they are ready to accept payment in form of the credit cards. This is one of the sources of income for the bank, when a consumer swipes his credit card bank charge 1% to 2% MDR(Merchant Discount Rate) on the amount from the merchant as well as they charge some fixed amount for the swipe machine which bank provides to these merchants. This way a bank is able to sell loans and earn some initial profit and if consumers get trapped into credit card defaulters then they will extract 35% to 45% annually from consumers.

So banks with help of credit cards are promoting merchant goods and trying to attract consumers to buy that product on credit cards and get into the overspending mode and someday this overspending will become a habit and get you into a credit card trap.


If you are a good user and you have control over your spending then a credit card can earn you some good cashback on your necessity spending which anyhow you were doing with physical money.


Conclusion: So now you might have understood why credit cards are sold by their sales representative at each public places like airports, petrol pumps, and shopping malls.

The credit card has two faces positive as well as negative it depends on you which side you want to be. So use it carefully and you will always be on the positive side.


Thank you for reading this blog. If you are interested in any of the below activities then you can use my referral links. This way you can support this blogging site and encourage me to add more blogs like this.


Credit Card

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IDFC Saving Account

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