How does a credit card work? Glad you asked.


How, exactly, does your credit card work?

You swipe it, and money is charged, right? Sounds easy. But take a look at everything that goes on behind the scenes. There’s a lot more to it.

Case in point: Debra Cassel’s missing DirecTV refund.

Cassel paid for a new satellite dish, and it was not installed.

Ultimately, DirecTV told Cassel that the refund was processed, but Discover told her it wasn’t. As it turned out, the Discover card she charged the dish to had been canceled and a new card issued.

If only Cassel had access to our brand-new credit card processing FAQ that just posted. Everyone who uses a credit card should have this knowledge, so they can better understand the systems when something goes wrong.

And that’s why we published it.

If she’d read the FAQ, she’d know that Discover had to move the money from the old account to the new account. However, using a credit card involves a lot more than swipe and pay. There are several parts of this seemingly simple transaction that can break down, and often do.

Among some of the questions I answer:

  • What exactly is a “merchant”?
  • How about the different types of cards? How do they work?
  • Why does it take two to three billing cycles to process a refund?

In Cassel’s case, the FAQ outlined her rights under the Fair Credit Billing Act, and how she could file a dispute. Ultimately, that’s what Cassel did, but she got lucky, too. The law requires that disputes be filed within 60 days of the date of the first statement on which the charge appears. But the card issuer can waive that restriction, which happened with Discover did. It issued a full refund.

We hope these frequently asked questions will help you the next time you hear a business blame your credit card for a slow refund or slaps a fee on a transaction. We  get a lot of those queries (if you don’t believe me, page through our help forums).

Our frequently asked questions project is just getting off the ground. If you have other topics you’d like to see us cover, please let use know.

William Leeper

A supervisor for major facility services company, and owner of his own information technology company. William has been involved with since 2012, and actively advocates cases, serves as a moderator for comments, has served as Managing Editor for commentary, and interim research director.

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  • cscasi

    Normally, when a card user has had a new card with a new number issued (for whatever reason) the old card number is linked to the new card number so that if refunds, etc., appear after the card number changed, it will be placed in the right account. Actually, it is the same account, just a new number and CV so no one can use the old number. If the card was lost or stolen, of course other security issues kick in and no charges made after the card loss was reported are allowed to go through. The card issuer will normally have the person who lost the card check the charges appearing on the account prior to the reporting, to ensure none of them are fraudulent (if some are they are flagged and in most cases the person will not be responsible for the charges – if the loss was reported in a reasonable amount of time).