What is a Credit Card Issuer? More About the Institutions That Extend Credit to Consumers

Wouldn’t you love to rip the masks off of the institutions responsible for issuing credit cards? What are they really up to, and how can you pick a trustworthy one?

Well, saddle up because I’m about to shed light on some of the lesser-known facts surrounding credit card issuers, explaining their role in helping — or sometimes tripping up — folks like you when it comes to making purchases and how you can choose the right one without stepping into a mess.

Credit card issuers are banks, credit unions, and other financial institutions that extend credit to the average consumer. 

They offer a wide variety of credit cards, all with different perks depending on what fits your needs and credit profile. Now, these card issuers play a few big roles: approving your credit applications, managing your accounts, and processing transactions every time you swipe your card.

These institutions let you buy stuff by lending you money to pay for the purchases and can even help you improve your credit history with responsible use. But beware: not all credit cards are created alike. Some have sneaky terms and hidden fees just waiting to blow your tire like a pothole in the middle of the road. 

A whole herd of credit card issuers are just chomping at the bit for your business. Each one dangles different benefits and services to sweeten the deal. The main issuers include banks, credit unions, credit card payment networks, and brand-specific card issuers.

Knowing the difference between them will better set you up to lasso the right card for your needs.

Banks

Banks are the big credit card issuers. You’ve likely heard the famous names Chase, Bank of America, and Citi, among others. Each of these outfits issues a full suite of cards that are designed for cash back, travel rewards, balance transfers, or saving a buck or two on low-interest cards.

Most of them offer online and mobile app banking, besides offering customer support through chat, phone, and email, so you’ll have plenty of avenues to holler when things go wrong.

In addition, many of the banks sweeten the deal with hefty signup bonuses and rewards programs. 

If your credit score is sitting pretty, they may even hand you a high credit limit. But watch out — some of these cards will carry interest rates and fees that sting your wallet harder than a boot full of fire ants. The best thing to do, then, is shop around before settling on one.

Credit Unions 

Credit unions, on the other hand, are a whole different kettle of fish: member-owned and based on service and consumer satisfaction — unlike many of those big banks out there. Many times, they are recognized for having lower interest rates and fewer fees on their credit cards, so they are a smart choice if you’re looking to save a few bucks. 

In general, you’ll be required to join a specific community, be employed through a particular employer, or be part of some other type of group to qualify for membership. But once you’re in, you’re family.

Credit unions are usually community-based and their credit cards typically charge lower interest rates and fees.

The major benefits that credit unions offer pertain to how they treat folks with less-than-perfect credit. They focus on personal service and may not hold you to the same sky-high standards the big banks do. They dole out numerous resources to help someone become informed about money and the wise handling of it. 

But there’s a trade-off: Their credit cards are more available and obtainable, yet they may not have some of the shiny whiz-bang perks and rewards you’d get with a big-name bank.

Credit Card Payment Networks

In the U.S., you have Visa, Mastercard, American Express, and Discover. Only American Express and Discover run networks and issue credit cards.

American Express offers several high-end reward categories, including travel and dining.

On the other hand, Discover provides cash back or miles rewards options. It also offers friendly programs such as first-year Cashback Match, through which it matches all of your cash back posted that first year without any strings attached. 

Store and Gas Card Issuers

You can get brand-specific (AKA “closed loop”) issuers providing credit cards. You can use these cards only with the issuer’s stores, unless they have a Visa or Mastercard logo on them.

For example, most stores and gas stations have their own credit cards you can apply for. However, it is the partner banks in the back office that do the heavy lifting in running those accounts.

Now, if you want a card that’ll let you roam free like a wild mustang, open-loop cards are more your speed. These are issued by banks or other financial outfits and work with big networks. This means that you can whip them out just about anywhere — whether you’re shopping online, in-store, or even when you’re gallivanting overseas. 

But good as they sound, store cards do have their limits, as you’ll get the value only when shopping with the retailer. If you want flexibility, these may feel a little like trying to ride a horse with blinders on — you’re stuck on one trail.

Credit card issuers extend credit to you, manage your accounts, and make sure your transactions go off without a hitch. They approve your credit, keep your account in order, bill you on time, and take care of the payment process. 

Approving Credit Cards 

When you apply for a card, approval by an issuer is not exactly a cakewalk. They go deep into your credit history and financial information, like a prospector sifting through dirt in search of gold. This often involves what is called a hard credit inquiry, where they consult with at least one credit bureau.

Now, this will hurt your credit score a little bit — like a pebble in your boot — but it’s nothing major unless you’ve just been applying for cards left and right.

The issuer’s going to pull your credit reports that show your history of borrowing. This includes how well you’ve kept up with your payments, what you still owe, and how long you have been playing the credit game. They’ll eyeball your three-digit FICO or VantageScore number, the distillation of everything on your file, ranging from 300 to 850.

This chart shows the score ranges for both credit scoring models:

The issuers are not giving away credit upon request. They view you as sharply as a hawk’s eye tracking a mouse. They evaluate your income and debts unemotionally to estimate whether you can manage to pay your bills. They figure out whether to offer you the card, how much credit to give you, and the interest rate to slap on. 

Now, these issuers remember things like an elephant. So whether you had dealings with them yesterday or way back when people used dial-up, they remember it all. And if you ever stiffed them on a debt, you might as well kiss that approval goodbye, even if your credit score now shines brighter than a polished boot.

To add insult to injury, some issuers even have rules that put a cap on the number of cards you can have. 

For instance, Chase’s infamous 5/24 rule says you will not get any new Chase card if you’ve opened five or more credit accounts — regardless of the issuer — within the last 24 months. The bottom line is that this policy helps issuers hold down the risk, hoping to prevent cardholders from churning their cards.

Account Management

Issuers watch your account for anything funny going on. They must keep the regulators happy and make sure all of the chores get done. They’ll sniff out unusual patterns in your transactions, and they’ve got all kinds of safeguards to keep those nasty fraudsters from messing with your hard-earned credit.

Second, an issuer is always in a position to give a helping hand if you have any questions or face some sort of problem. It has also positioned its support staff for access via telephone, email, mobile application, or online chat. 

Most issuers will also have a mobile application through which you can manage your account from literally anywhere, whether it be from the comfort of your porch or halfway across the world. 

These apps are usually packed full of features such as transaction history checking, bill payment, alert setup, and a whole lot more. With that app in the palm of your hand, you are in full control of your spending.

Billing and Payment 

Every month, your card issuer sends you a statement that lays out each and every one of your transactions, the outstanding balance, and when they expect to see the color of your money. You’ll get it either through email or snail mail. 

Issuers ensure that your payments are facilitated quicker than a roller coaster at the county fair to hit your account right on time and save yourself from nasty late fees and interest charges.

Issuers send you a bill each month and typically offer several convenient ways to pay — including via their website, mobile app, auto-pay, in-person, or with a check.

You can pay through the app, online, by phone, at the bank, or even via postal mail — whichever suits your fancy.

Most of them even offer some sort of auto-payment setup, so you don’t have to concern yourself with forgetting to pay. It’s like having a trusty ranch hand taking care of business — your payment goes in by the due date to protect your credit score and save you from any late fees.

My advice: Visit online forums like Reddit or myFICO and listen to what actual customers are saying. You’ll catch the good, the bad, and just plain ugly about the practices in place by different issuers.

Articles on trusted sites (like CardRates.com) also provide a solid rundown on multiple issuers to figure out which one will give you the best deal and won’t leave you high and dry.

Compare Interest Rates and Fees 

Different issuers may stick to one or two types of cards, which have different interest rates and fee structures. The APR is what’ll hit your wallet if you carry a balance, so you want the lowest you can find. A low APR means you won’t bleed as much money in interest.

Check whether the annual fee of the card is worth it, too. Do the perks you get make up for what you’re paying just to keep the card?

Check how issuers handle late payments. They will likely charge penalty fees and increase your APR after one or two missed payments. Penalty fees may include late payment charges, fees charged for returned payments, as well as over-limit fees.

If you cross the line, you might just get a penalty APR from issuers. That’s a higher interest rate that will burn a hole in your pocket faster than any lit firecracker. Keeping ahead of these fees keeps your money safe and your credit score looking good. 

Check Recruitment Enticements

Many card issuers throw in some attractive features, such as signup bonuses or introductory 0% APR promotions, to reward new cardmembers. Signup bonuses give extra cash back, points, or miles when you spend a certain amount on purchases within a short period, usually three months, from the opening of your account.

These bonuses provide immediate value and give a reason to choose, say, Card B over Card A. For example, a travel rewards card may offer 50,000 miles after you spend $3,000 within the first three months.

Issuers advertise their signup bonuses, dangling promotional introductory 0% APR on purchases and/or balance transfer options. There are no-interest promotions that allow you to carry balances on purchases or transfers and defer interest payments — generally six to 18 months.

This feature really pays off when you plan to make big-ticket purchases and want some leeway in paying them off. Balance transfer promotions save you a bundle if you’ve got existing high-interest credit card debt that you consolidate and pay off without incurring interest charges. 

Identify Rewards and Benefits 

Reward schemes and redemption options should help you pick the right card. Reward cards offer cash back, points, or miles. Consider how you’re going to use your card to decide on a reward program that best fits your spending. For example, if you are someone who travels often, a card offering travel rewards with easy redemption options will be the cherry on top of the sundae.

Co-branded travel cards are specific to airlines and hotel chains and often bring superior rewards rates, along with a few exclusive benefits.

Other benefits that a travel card issuer may add include a trip insurance plan, airport lounge access, purchase protection, exclusive concierge assistance, and a lot more. Travel insurance will protect you from unexpected expenses during trips, and concierge services are very helpful when making travel arrangements or reservations. These benefits (or lack thereof) make a big difference in how much you enjoy the card.

As far as travel rewards cards are concerned, pay attention to your regular and co-branded open-loop travel card options. General-purpose travel cards come with points or miles redeemable at different airlines and hotels. 

Research Customer Service and Support

Another important thing is the quality of customer service and support that an issuer offers. You’d be plum wise to favor issuers that have 24/7 customer service so that you can get help when you need it, whatever the time. This is particularly important if you travel a lot or require help after hours. 

Look for cards with online account management tools and mobile applications. These will help you manage your account, track your spending, and allow you to make payments conveniently. Make darn sure that the issuer has a user-friendly platform to suit your needs.

The ability to instantly lock your card can be a lifesaver in avoiding fraudulent transactions in case of card loss or theft. 

You may also want to search for any past regulatory enforcement actions against the issuer. Government databases and sites such as the Better Business Bureau and Trustpilot can help in this regard. This type of research will give you all the ugly facts about an issuer’s business policies and reliability.

Credit card issuers have a lot to do to ensure the secure and smooth operation of their businesses. They must comply with regulatory provisions, manage credit risk, and bring on technologies to make credit cards safer.

Regulatory Compliance

Credit card issuers must abide by federal and state laws governing credit. Major federal legislation includes the Credit Card Accountability Responsibility and Disclosure (CARD) Act and the Truth in Lending Act (TILA) regulations. 

The CARD Act ensures clear terms, limits on fees, and protections against unfair interest rate increases. TILA requires disclosure of key credit terms and protects consumers against deceptive lending practices.

Issuers deploy many security measures to safeguard cardholder information. They include two-factor authentication, which requires a second form of verification when using your card; password requirements for added security to your account; and data encryption to help prevent unauthorized access to sensitive information. All this fancy footwork keeps your personal and financial data safe.

Credit Risk Management

Issuers arm themselves with algorithms and scoring models to figure out an applicant’s risk. These models look at your credit history, income, patterns of expenditure, and other factors to decide whether you will be able to pay back the money you have borrowed. 

Issuers set credit limits based on your risk and adjust them from time to time, depending on how you handle your account. For example, using credit responsibly and making timely payments may result in a higher credit limit. A lousy payment history or overuse of your credit could lower your score.

The brightest red flags to issuers are frequent late payments, high credit card balances in relation to limits, and multiple recent applications for new credit accounts. These actions may indicate financial distress and a rising risk of default. Issuers may respond by lowering your credit limits and eyeing your account activity more closely. In extreme cases, issuers may simply close your account.

Technological Innovation 

Credit card companies never stop developing new technologies and features to make the cards more secure and convenient. Contactless payments and digital wallets (e.g., Apple Pay, Google Wallet) enable you to do stuff efficiently and securely without a physical card.

This is possible through the use of near-field communication. NFC fights credit card fraud by providing secure, encrypted, contactless transactions, thereby safeguarding the information on the card. Besides encryption, NFC technology applies tokenization — card details are replaced by unique digital identifiers for every transaction.

Chip cards, in particular, bring improved safety against fraudulent activities compared to their traditional magnetic strip ancestors. They fight fraud by creating an individual code for every transaction, so it’s hard for cybercriminals to make any other purchase with the info they steal. 

Unlike magnetic stripe cards, which have fixed data stored in them, chip cards contain dynamic data that cannot be replicated or used without authorization.

We will probably see more technological advances in the next 20 years. These may entail more complex ways to establish biometric verification, broader employment of artificial intelligence for fraud detection, and blockchain integration for securing transactions. These innovations will reduce payment fraud—they offer a firmer base for making transactions safer, smoother, and more convenient.

Virtual credit cards provide another element of security — temporary card numbers you can use while making online purchases instead of exposing your actual credit card account. Since they can only be used once or for a short span, virtual account numbers fend off fraud. 

Biometric identifiers, from fingerprints to facial recognition, are increasingly used to verify your identity and authorize transactions. These technologies enhance safety by making sure it is truly you who has access to the account and who makes the purchase. 

Credit card issuers are dang important for the financial system by forking over credit to consumers and businesses. Issuers offer quite a few credit cards that meet most of the financial needs and preferences of consumers, such as rewards and balance transfers.

Issuers pump up their activity with enhanced safety measures to increase your confidence that you may safely execute transactions anywhere in the world. More importantly, the issuers’ approval procedures and risk control models help keep the boat steady in rocky waters.

Apart from providing credit, issuers are crazy about innovation and security in finance. They have put their arms around new technologies that range from chip cards to mobile payments, trying to protect you from fraud and offer you the best user experience. One way or another, you should be able to find a card that really lights your fire.