How Credit Cards Work:

Credit Card Companies

Credit cards are issued by credit-card companies, which isn't a surprise. What might surprise you is that these credit-card companies are actually banks .

Credit-card companies include Chase, Bank of America, Capital One, and many others . The name of the credit-card company usually appears on the front of a credit card in big fancy letters.

Whenever you want to check your credit-card balance, pay your credit-card bill, or need to dispute a transaction that appears on your credit-card statement, you contact your credit-card company -- their info is always on the back of the credit card.

Co-branded Credit Cards

Sometimes, the credit-card company's name is less obvious on your credit card. This is especially the case when a credit card is offered through an agreement called "co-branding."

When a large corporation signs a partnership agreement with a credit-card company, co-branded credit cards are the result of that agreement. The "Mileage-Plus" Visa offered by United Airlines is actually is the result of a partnership between United Airlines and the Chase® credit-card company. Likewise, when Amazon.com partnered with the Chase® credit-card company, the Amazon.com credit card was born.

In these examples, it isn't Chase that does the marketing of credit cards to the public. Instead, United Airlines or Amazon.com markets the cards. The benefits offered by the co-branded credit cards are tailored specifically to the items offered by the large company. When you use your United Airlines "Mileage-Plus" card, you'll get rewarded with airline reward miles on United Airlines. You wouldn't expect to get free miles from American Airlines when you use your United Airlines "Mileage Plus" card, right?

In a similar fashion, the Amazon.com credit card offers you an Amazon.com gift certificate each time you've spent a certain amount on your Amazon.com credit card. You won't get airline miles, cash back, or free Starbucks coffee: you'll get a $25 gift certificate to spend online at Amazon.com.

A co-branded credit card offers tailored rewards to people who use that card, but it also helps the corporation that has teamed up with the credit-card company to issue the card. Corporations partner with credit-card companies to co-brand credit cards for a few reasons. A couple of the main reasons are:

• It is profitable for corporations: They directly or indirectly get money from the credit card companies.
• It establishes consumer loyalty to a corporation and its brand: By putting their name in your wallet, you will see it every day.

If you have a store card, for example, a Macy's credit card, it is the same thing as a co-branded credit card, except you can only use that credit card at Macy's.

Credit-Card Networks

But where do the boxes that say "Visa" or "MasterCard" fit in? Visa, MasterCard, American Express, and Discover are the four major credit-card networks.

American Express and Discover aren't just networks, though; they're also credit-card companies. If you have a problem with your Discover bill, you contact Discover directly. But if you have a problem with your Visa bill, you will contact your credit-card company (for example, Capital One).

Visa, MasterCard, American Express, and Discover handle the worldwide processing of credit-card transactions, and also set the transaction terms for credit-card companies and the stores/restaurants where you use your card. In addition, they act as a gateway between merchants and credit-card issuer banks for authorizing and processing each transaction.

It's important to make sure that the credit-card network that's associated with your credit card (MasterCard, for instance) is accepted at the place where you want to shop or charge a meal - especially if you're on a first date!