A credit card trust bank is a bank that issues credit cards. These banks will issue a credit to users in the form of lines of credit or loans that the user may use to make purchases with their card. The bank then charges interest on these outstanding balances and will collect payment from the cardholder at a future date (on top of any other fees). Interest charges typically range between 0% and 30% per month.
How A Credit Card Trust Bank Works
A credit card trust bank will authorize the issuance of a new credit card to an applicant after checking his or her ability to repay any outstanding debt. Once approved, the terms of repayment are set by the account agreement. This agreement establishes the grace period before interest is charged on the outstanding balance (typically 25 to 31 days), the cardholder’s monthly minimum payment, and any other fees.
The bank will then mail the credit card to the applicant. Two types of cards are available: physical plastic cards with a magnetic strip or virtual online cards without a physical card being issued. Credit line limits are also set when the account is opened.
Once the cardholder makes a purchase using their credit card, the outstanding balance becomes an account receivable for the bank. The bank will set up periodic billing statements to be sent directly to the customer. These statements detail all purchases made with the card, the final payment due date (usually 25 days after statement printing), and any late fees if the bill remains unpaid.
The credit card trust bank will then begin charging interest on any outstanding balance. A common interest rate is between 0% and 30% per month, although some cards can have higher rates depending on a customer’s credit history or other factors. Interest may be charged from the time of purchase or from the billing statement processing date. Interest charges are added to the customer’s statement and capitalized once a month. These charges remain on the account until it is paid in full.