How The Credit Card System Works
Smart use of your credit cards is important,
and it is not how many cards you possess.
If there are advantages to possessing
many credit cards it is in their proper use, not in
their dollars of potential credit.
Here's how credit cards work:
Banks cooperate with each other to closely
to track their cardholders, and most banks want to
know how many credit cards you now have before they
issue one of their own.
Banks share computer files to trade
cardholder information. When a bank discovers you
have too many cards (each bank has their own policy
on how many cards are too many), they automatically
reject your application.
Banks that offer the same card usually
disallow repeat cards to a cardholder.
You normally may obtain only one card
from an interconnected network of cooperating banks.
How does a bank card system actually
work?
When you apply for a credit card at
your local bank, many events occur. While your local
banks name is displayed on your credit card, odds
are that your card was instead issued by a different
bank.
Interconnected banks trade favors and
reciprocate functions.
Banks also hire each other to perform
different services to cut their overall costs.
Bank card systems are complicated.
First, they must accept new applications,
obtain credit reports, and establish approved accounts.
Then the actual cards must be printed
and embossed. Ongoing paperwork includes preparing
and mailing billing statements, sales brochures, late
payment notices, and other details that make a credit
card program succeed.
Few banks undertake every function required
to operate a credit card program. To avoid complicated
and costly processes, some banks act as credit card
agents for others. Usually smaller banks contract
with the larger banks for card-related services.
The largest card processing centers
usually handle accounting, credit checks, mailings,
statements, collections, and administrative details
for smaller banks.
The smaller banks pay, as a fee, a percentage
of its annual credit volume. Both the large and small
banks benefit from this relationship.
Bank networks commonly share parts of
the credit card process.
One bank may offer applications; another
may handle credit checks; a third (or fourth) bank
the embossing and monthly statement function.
Major networks may have many lines of
agent banks stretching out in a lengthy chain. Other
networks may encompass only three or four agent banks.
So what happens if you simultaneously
apply for credit cards from several local banks?
Although you may apply to different
banks, many will be connected to the same major bank.
This, of course, raises two possibilities:
1) The major bank will have a relationship
with the agent banks that prevents the applicant from
obtaining more than one card from the major bank.
Even if you apply to twelve banks connected to the
same major bank, the major bank will only issue one
card.
All others are automatically cancelled
as they enter the central computerized system. Your
credit card will bear the name of the accepting bank.
But in the process you generated potentially harmful
numbers of inquiries on your credit report.
2) A major bank will issue several cards
to the same individual if the agent bank assumes responsibility
for your credit. The agent bank would then assume
responsibility for any default in payment.
So before you apply for a credit card
make sure that you do not already have one from that
issuing bank.
Gus Skarlis is considered as of of the
foremost automotive credit experts and has numerous
websites devoted to educating the public about credit.
You can find his website at: http://www
.helpmycarcredit.com
