Credit cards operate quite differently from cheque cards. A cheque card guarantees payment of a cheque, whereas a credit card guarantees payment against a sales voucher signed by the Credit Card Holder.

Each credit card bears a specimen signature of its holder and is embossed by the issu­ing bank with the holder’s name and number. When goods or services are supplied, the holder gives his card to the supplier who has agreed to join the scheme.

The supplier places the card in a special imprinter machine, which records the holders name and number on a sales voucher. The particulars of the transaction are added on the voucher. The holder signs the voucher and the supplier compares the signature with that on the card.

He then sends the voucher to the issuing bank which pays the amount claimed less a service charge (normally between 3% to 7%). At the end of the month, the bank sends a fully item-wised statement to its card holder who must remit his cheque for the total amount. The customer is not required to pay any interest upon the sum due, provided that he makes payment within a specified time, usually about three weeks.


Credit cards may also be used for the purpose of obtaining cash from the branches of issuing bank or branches of certain other banks with which arrangements have been made. Some institutions make a specific annual charge to their cardholders.

The mechanism of operation of the credit card can be explained with the help of the following diagram:

Mechanism of Credit Card Operation

1. Customer applied and got the Credit card.


2. Arrangements are completed between the banker and seller.

2 The customer makes the actual purchases and signs on the sales vouchers.

4. The seller sends the detailed vouchers to the bank.

5. The bank settles the claims of the seller.


6. The customer receives the intimation from the bank in this regard.

7. The customer makes the payment for the purchases made by him.