Credit Card Management- 8 Simple Steps
Credit card management is the process of granting credit, or recovering credit when it is due. It ensures compliance with company credit policy along with other credit-related functions. The goal of the bank in controlling credit is to improve revenues and profit. It is done by increasing sales and reducing financial risks.
A credit manager is a person employed to manage the credit department. The manager makes decisions about:
- Credit Limits
- Acceptable Levels of Risk
- Payment Terms
- Enforcement Actions with Customers
- Accounts Collect and Receive
Development of Credit Card Management
Credit card management construction requires some special skills, like:
- Strong knowledge of security within your province, state, or territory.
- Ability in understanding how money moves through the construction pyramid.
- Handling credit managers with managerial and non-managerial staff.
- Basic knowledge of construction and the willingness to make site visits.
Credit Card Management Process
The main component of the credit card management process is as follows:
- Card Product Management
- Card Issuing and Authorization
- Card Fee
- Charge and Interest Management
- Cardholder Statement
- Card Life Cycle Management
- Clearing Payments
- Dispute and Chargeback management
Card Product Management
Card product management builds and directs credit card product strategies, develops and implements marketing plans to drive business growth and meet norms.
Card Issuing and Authorization
For issuing a credit card you need to choose the card first. Then apply for the card and activate it finally. Credit card authorization is an approval that a customer has enough funds on their card to pay for the transaction. This is the approval from an issuer, usually through a credit card processor.
The customers will only focus on the annual fee of the card. But there are several other credit card fees such as:
- Cash Advance Fee
- Over-limit Fee
- Late Payment Charges
- Interest Rate
- Credit Card Charges paid after Moratorium
Interest and Charge Management
Interest denotes all debt, and extra charges denote debts that are not paid on time.
The interest varies from time to time, but it can be the same amount also. Missed payments cannot increase the rate of interest.
Extra charges must be fair and based on actual costs. If you miss payments or late payments these charges are applicable. The charges are applicable if it is mentioned in the credit agreement.
A cardholder statement is a summary of how you have used your credit card for the billing period. The statement includes the calculation of your total credit card balance.
Dispute and Chargeback management
A chargeback is a return of money to a payer of some transaction. The chargeback reverses money transfers from the consumer’s bank account.
Chargeback management is the process of recovering revenue lost to chargebacks. Companies that manage chargebacks have secure transactions, higher customer retention rates, and increased satisfaction rates.
A dispute occurs when the customer contacts the bank to have their money returned. Disputes are a feature of the bank to protect their customers from fraudulent activity. Disputes may arise for several reasons like
- Not as described
- Not as recognized
- Fraudulent Alert
- Admin Error
Clearing payments denotes all activities from the time a commitment is made for a transaction until it is settled. It is necessary to clear payments because the speed of trade is faster than completing transactions. Clearing payments helps to achieve your credit scores.
Card Life Cycle Management
While acquiring credit cards, authorization will be the first part. Card processing includes the following to begin the transaction:
Managing Credit Card Debt
Credit cards are very helpful in our day-to-day life. But we lose control of our spending because it is easier to make small payments. Consider the following steps before your credit card debt becomes unmanageable.
- Take a loan
- Understand where you are overspending
- Set up a budget
- Change the lifestyle causing debt
Avoiding Fees and Extra Charges
Credit cards can be a low or zero-cost way to borrow funds. If you use credit cards in the wrong way you could create debt that spirals out of control.
Keep your PIN (Personal Identification Number) secure
- Do not share your PIN with anybody. If you do, there is a chance of them exploiting it. And the bank will not be responsible for what has been taken away. The bank might pay it back if the fault was not yours.
- Change your PIN to something that you can remember. It should be memorable for you, but not something others could easily guess.
Avoid Cash Withdrawals or Credit Card Cheques
Credit cards are not like debit cards where you can’t withdraw cash for free.
You would be paying a higher interest rate when compared to purchases on your card. It is applicable even if you pay off your card in full at month-end. This is because there is no interest-free period, unlike purchases.
Some other transactions may be like cash withdrawals, including the same interest rates and charges. For example:
- Buying gift cards
- Buying postal orders
- Gambling transactions
- Competition entry fees
- Buying foreign currency
- Paying for something with credit card cheques. (better to avoid these)
Avoid Recurring Payments on your Credit Card
Recurring payments will add charges to your credit card bills. This is known as Continuous Payment Authority (CPA). But it is not safe as a Direct Debit from a bank account.
The recurring payments can be canceled by contacting the bank. Contact your bank for withdrawing permission from the company to take payments. The bank must refund the amount along with other charges if payments are made after canceling.
Recurring payments in credit cards should be avoided because you might exceed your credit limit, leading to extra charges.
Credit cards can provide valuable rewards and perks, but if not used appropriately, they can ultimately do more harm than good. On comparing rates, terms, and fees, you can select the credit card that will cost you the least with more benefits. It is better if you keep your payments on time and your credit utilization low. Check your credit card statements and credit reports frequently. Check for fraudulent charges and correct errors.
A disciplined spending habit can help in using a credit card most efficiently. Credit cards are not a bad product if one makes proper use of them. It is in the hands of the cardholder to not take advantage of the spending potential given by the credit card issuer.
Frequently Asked Questions
1. Who profits from credit card debt?
Interest charges are the primary source of revenue for credit card companies. When a user fails to pay off their bill at the end of the month. the bank charges interest on the borrowed amount. The bank makes money by collecting charges.
2. Do credit card companies make profits if you pay the full amount?
Credit card companies might profit from such transactions. It is because companies make revenue from interest and charges.