Credit Card Processing

We all love Credit Cards - spend today, pay later - makes life a lot more convenient. Some of us make payments on time, while some of us are happy with paying the interest on the credit card arrears (spending) and make the payment in installments over a long duration of time. The concept is to live today and live life to the fullest. Apart from making the payments of credit card, However, one should be careful about the credit card processing. It is an important concept and requires thorough understanding keeping in mind the security of your credit card transactions. I've listed some Credit Card Safety Tips, but along with that, one should also be aware of the Credit Card Processing, so that we do not end up accidently allowing fraudsters to misuse our credit card, and then sit with the liability of payments to be made by us.

In this article, we’ll take you through the complete process of Credit Card Processing and how it happens step-by-step. This will help you understand the details of credit card transaction processing and will ensure that you are aware where all the security breaches that can occur while you use your credit card for making a payment.

Introduction to the Credit Card Processing is dispalyed in the figue below:



Though most of us agree that plastic cards have revolutionised our spending method and transformed the way we manage our money, have you ever wondered what happens behind the scenes when you hand your card over to pay?

Above is the flow chart (borrowed from APACS website) that details the complete payment process from the moment you hand over your card in a shop, restaurant or hotel to the moment when the money comes out of your account.

The process begins
Every credit card processing transaction follow a basic process that begins with the cardholder, and involves four primary points of contact. Let us assume an example of a hypothetical credit card user called Anna.

How Credit Card Processing works?
Anna is at her favourite dress shop to purchase some new clothes. After finding the clothes she wants, Anna decides that she is going to use her credit card to pay for the cost of her purchase. So, what happens next?

Credit Card Processing Step 1:
Anna (the cardholder) hands her card to the shop assistant (the retailer) to pay for the clothes. The payment process begins when the shop assistant inserts her card into the electronic processing machine, also known as a point-ofsale (POS) terminal. Once the card has been inserted, Anna will be asked to enter her personal identification number (PIN). Entering her PIN verifies that she is the genuine cardholder and confirms the purchase amount.

Credit Card Processing Step 2:
Once Anna’s PIN is accepted by the shoe store’s POS terminal, her card details and the purchase amount will be passed through to the store’s bank. The store’s bank, also known as the acquirer bank, will then deal with Anna’s card transaction and forward it to Anna’s bank (known as the credit card issuer) via the card scheme (i.e. Visa or MasterCard) that Anna’s card is linked with.

Credit Card Processing Step 3:
When Anna’s bank receives the details of Anna’s purchase from the relevant card scheme, it will carry out a number of checks – such as making sure that the card hasn’t been blocked, reported lost or stolen and that there are sufficient funds in the account – before debiting the exact amount of the purchase from Anna’s account.

Credit Card Processing Step 4:
Once the money has left Anna’s account, it will flow in the opposite direction back to the store (the retailer) where Anna initially handed over her card to pay. In short, the money goes from Anna’s bank, back through the relevant card scheme to the store’s bank where the funds are credited into the store’s bank account. At this point, the transaction is complete.

This is the typical Credit Card Processing which occurs when the cardholder decides to make a payment through his/her credit card and this process is followed across the globe for all kinds of credit card.

The same is true for making online credit card purchases. The only difference is that instead of punching in the PIN number on the Point of Sale POS terminal, you are required to key in your CVV number (usually 3 digit) at the back of your card. This is like your PIN number for online transactions. Some credit card issuers have seperate online PINs for using the credit card for online purchases and it depends upon the country of credit card and the credit card issuer.

Free Credit Score Report

As we have seen in last few articles, that a credit report is of utmost importance the moment you apply for a credit card, or you want to take a loan, or you want to apply for a mortgage loan. The companies offering you the credit card or loan or mortgage then do a background check and go though your Credit Report, before deciding whether they should offer you a loan or not. Hence, the Credit Score Report becomes very important for individuals to maintain a good Credit History or Credit Record.

Let's start with the basics:

What is a Credit Score Report?
A Credit Score Report is a summarized record of your financial borrowings or credit activities which you may have carried out in the past. As per Wikipedia, A Credit Score is a numerical expression based on a statistical analysis of a person's credit files, to represent the creditworthiness of that person, which is the perceived likelihood that the person will pay debts in a timely manner. A credit score is primarily based on credit report information, typically sourced from credit bureaus / credit reference agencies.

What is listed in the Credit Score Report regarding the credit history?
The Credit Score Report lists all the details about any credit-card accounts or loans you may have, the corresponding outstanding balances, and similar transaction details. The Credit Score Report also may include details if any action has been taken against you because of unpaid bills or you missing out making a term payment for your mortgage or loan. Most important, your credit report contains your credit card, mortgage and loan payment history.

What personal information is listed in the Credit Score Report?
The Credit Score Report also includes personal information like name, address, date of birth, and Social Security Number. It also includes previous addresses, current and previous employers, and public records like bankruptcies, liens, or judgments.

How should one maintain a good credit record?
In simple steps, you should never default or delay on any of the payments. Always maintain good rapport with the financial companies like banks and mortgage lenders and credit card companies. Always make your payments on time. It is advisable to maintain good rapport with the employers as well, as in some countries, the Credit Score Report contains details about your employer and your loan offering company may just call up your employer to verify your credentials with them.

How frequently the Credit Score Report changes?
Your Credit Score Report will change with each financial transaction or activity that you perform on the debt side. This may include payment of credit card bills, mortgage repayment and other loan payments.

Are there any services to offer Free Credit Score Report?
There may be a few organization which claim to offer free Credit Score Report, one report per year. But one should be careful because they may later charge you for signup or other account setup fee. In the so called FREE Credit Score Report, you may only see a very fine summary of the Credit Score Report. If you want to ask for details, then you will be asked to pay for.

Is it required to check the Credit Score Report often?
YES. It is definitely a must to check your Credit Score Report atleast once a year. The reason is that in some countries, there may be multiple credit rating agencies, and each agency may rate you differently. Hence, to be clear about your credit rating standings, it is always good to know about the Credit Score Reports.
Also, there may be cases of identity theft, where without your knowledge, someone else may be carrying on financial transactions in your name. This may include taking loan in your name and not making a repayment. Ultimately, it will be you whose rating will be affected. Hence it is important for you to keep checking your credit rating periodically.

What are the best ways to check Credit Score Report?
Depending upon the country of your residence, you can opt for checking the Credit Score Report.

In case of USA, you can get your respective US Credit Score Report from one of the three major credit bureaus: Experian, TransUnion, and Equifax.
Americans are entitled to one free credit report within a 12-month period from each of the three agencies. The three credit bureaus run a website, where users can get their free credit report, normally without credit scores. Credit scores are available as an add-on feature of the report, for a fee.

In UK, there are 3 agencies which you can approach for UK Credit Score Rating - They are Experian, Equifax & Callcredit

In Canada, there are again 3 agencies for Canada Credit Score Rating - Equifax, TransUnion, and North Credit Bureaus (an Experian company)

Credit History Credit Profile: Credit Bureau Agencies

Now that there are thousands of cards available in the market. Its easy for you to apply for a credit card and wait for the credit card to arrive. You can apply for the credit card on phone, you can apply for credit card online through website, or you may visit a bank branch or request a customer services representative to visit you for the credit card application process.

But how does the credit card company decides whether to issue a credit card to a particular individual or not? That's where the Credit History or credit Profile comes into picture. Remember, the Credit Card given to you is a big liability both to the credit card holder and the credit card issuing company. What if a company issues me a credit card with a 100,000 limit and I spent all the money on the card and run away. To avoid such cases, there is a concept of credit history checks or credit profile checks. There are Credit Bureau or credit rating agencies which maintain a credit record or credit profile for each individual. The credit reference agencies maintain the credit records of individuals and the credit card companies refer to these records before issuing any credit cards to an individual.
There is a lot of information stored by the credit reference agencies. However, it’s your data and details. You have the right to ask for the information you may need.

What kind of information do these credit reference agencies store?

On a broad level, the information held by the credit reference agencies may include the following:

• Your credit history details for financial transactions
Credit reference agencies store records showing how you have made payments on credit agreements for the past 36 months. Other information can also be held including whether you have a joint account or whether you have raised a query on your record.

• Court judgements of your financial transactions
Credit reference agencies receive and hold information on court judgments, bankruptcies (or sequestrations in Scotland), bankruptcy restrictions order and any voluntary arrangements that may have been made with your creditors.

• Other credit applications
Credit reference agencies hold ‘search’ records, sometimes known as ‘footprints’. These show organisations which have looked at your report over the last 12 months. These will be visible to you on your credit report and visible to lenders who may decide not to lend to you if you have made a large number of applications over a short period of time.

• Electoral Roll
Lenders look at the electoral roll to check that you live at the address on your application form. This can help prevent fraud and money laundering.

Which credit reference agencies are operating in the USA UK and India?
In the United States, the legal term for a credit bureau under the federal Fair Credit Reporting Act (FCRA) is consumer reporting agency — often abbreviated in the industry as CRA.

In UK, there are 3 different credit reference agencies that work for maintaining the credit ratings of the UK residents. The are Experian, Equifax and CallCredit.

Below, you will find the details of all these organizations and their contact addresses:

EXPERIAN:
PO Box 8000
Nottingham
NG80 7WF
0870 241 6212
www.experian.co.uk

EQUIFAX:
Credit File Advice Centre
PO Box 1140
Bradford
BD1 5US
0870 010 0583
www.equifax.co.uk

CALLCREDIT:
Consumer Services Team
PO Box 491
Leeds
LS3 1WZ
0870 060 1414
www.callcredit.plc.uk

In India, the establishment of Credit Information Bureau (India) Limited (CIBIL), India's first Credit Information Bureau, is an effort made by the Government of India and the Reserve Bank of India to improve the functionality and stability of the Indian financial system by containing NPAs while improving credit grantors' portfolio quality.

Related: How to Select a Credit Card & Credit Card Safety Tips

How to check your credit records?

You can contact each of the three credit reference agencies to ask for a copy of your credit record at any time. There is a statutory fee of £2 for each report. Reports are also available online but may cost you more. The information held by each agency can vary so it is vital to check all three. We recommend you check your record with each agency at least annually. Not only is this a good way of ensuring that the information held about you is correct but it can also provide peace of mind that you have not been victim of identity theft and that no-one has successfully applied for credit in your name.

In an extreme case, If you believe that you have been a victim of ID fraud you should contact each of the organisations above and keep copies of any correspondence.You may be advised to report the theft to the police.You can get further advice and guidance from www.identitytheft.org.uk