Credit Card

A credit card is a type of payment card which allows its holder to make purchases on credit using loans provided by a credit card issuer.

Payments for purchases charged to credit cards are drawn from the account of the card issuer rather than the cardholder’s bank account or prepaid account. The cardholder settles the loans at a later date by repaying the card issuer.

The issuer decides what amount of money can be borrowed using a credit card (the line of credit) based on the cardholder’s creditworthiness. Creditworthiness, in turn, is based on income, expenses, existing debt and debt repayment records. The higher the creditworthiness of the cardholder, the higher the line of credit they will receive.

Typically, credit card loans are revolving loans, meaning that a new loan is automatically issued for negative balances which are not repaid at the end of each billing cycle (normally 1 month). Credit card issuers charge interest on outstanding balances which are not repaid by the due date. However, they do not charge interest on loans which are repaid by the payment due date of each billing cycle.

Some Swiss credit card issuers and banks do not allow cardholders to carry a balance over from one month to the next, or require cardholders to apply for this function separately. Credit cards which require cardholders to settle their negative balances in full at the end of each billing cycle are known as charge cards.

In Switzerland, the maximum effective annual interest rate which card issuers can apply to outstanding credit card balances is dictated by the Swiss consumer credit law.

In addition to the interest charged on outstanding account balances, credit card issuers also earn money by charging merchant fees to merchants which accept credit cards as a means of payment. In exchange for the merchant fees which they pay, merchants may benefit from being able to accept payments remotely (online, for example) or from making sales to customers who would not have enough available cash to make the purchase. In this way, credit cards are a payment service similar to wire transfer services and checks.

In order to encourage consumers to use their services, credit card issuers often provide complimentary benefits such as insurance coverage, concierge services, discounts at partner merchants and complimentary club memberships to credit card users. Many credit card issuers also offer rewards in the form of cash back, points or airline miles based on credit card use. Because card issuers charge merchant fees to merchants and fees and interest to customers, they can afford to offer these benefits and still earn a profit.

You can compare the benefits, costs and features of Swiss credit cards using the interactive credit card comparison.

More on this topic:
Swiss credit card comparison

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