Credit Card: What It Is, How It Works, and How to Get One

Credit Card: What It Is, How It Works, and How to Get One

What Is a Credit Card?

A Credit Card is a skinny rectangular piece of plastic or steel issued by a financial institution or monetary providers firm that permits cardholders to borrow funds with which to pay for items and providers with retailers that settle for playing cards for fee. Bank cards impose the situation that cardholders pay again the borrowed cash, plus any relevant curiosity, in addition to any further agreed-upon prices, both in full by the billing date or over time.

Along with the usual credit score line, the Credit Card issuer might also grant a separate money line of credit (LOC) to cardholders, enabling them to borrow cash within the type of money advances that may be accessed by means of financial institution tellers, ATMs, or Credit Card comfort checks. Such money advances usually have totally different phrases, similar to no grace interval and better interest rates, in contrast with these transactions that entry the primary credit score line. Issuers typically preset borrowing limits based mostly on a person’s credit rating.

A overwhelming majority of companies let the client make purchases with bank cards, which stay certainly one of as we speak’s hottest fee methodologies for getting shopper items and providers.


  • Bank cards are plastic or steel playing cards used to pay for gadgets or providers utilizing credit score.
  • Bank cards cost curiosity on the cash spent.
  • Bank cards could also be issued by shops, banks, or different monetary establishments and infrequently supply perks like money again, reductions, or reward miles.
  • Secured bank cards and debit playing cards supply choices for these with little or a bad credit score.

Understanding Credit Playing cards

Bank cards usually cost the next annual percentage rate (APR) vs. different types of shopper loans. Interest prices on any unpaid balances charged to the cardboard are usually imposed roughly one month after a purchase order is made (besides in instances the place there’s a 0% APR introductory supply in place for an preliminary time period after account opening), until earlier unpaid balances had been carried ahead from a earlier month—by which case there isn’t any grace interval granted for brand spanking new prices.

By legislation, Credit Card issuers should supply a grace interval of a minimum of 21 days earlier than curiosity on purchases can start to accrue.1 That’s why paying off balances earlier than the grace interval expires is an effective apply when doable. It’s also essential to know whether or not your issuer accrues curiosity each day or month-to-month, as the previous interprets into greater curiosity prices for so long as the stability just isn’t paid.

That is particularly essential to know in the event you’re seeking to switch your Credit Card stability to a card with a decrease rate of interest. Mistakenly switching from a month-to-month accrual card to a each day one might probably nullify the financial savings from a decrease fee.

People with poor credit score histories usually search secured bank cards, which require money deposits, that afford them commensurate strains of credit score.


Varieties of Credit Playing cards

Most main bank cards—which embody Visa, Mastercard, Uncover, and American Specific—are issued by banks, credit score unions, or different monetary establishments. Many credit cards entice prospects by providing incentives similar to airline miles, lodge room leases, reward certificates to main retailers, and money again on purchases. A majority of these bank cards are usually known as rewards credit cards.

To generate buyer loyalty, many nationwide retailers concern branded versions of bank cards, with the shop’s identify emblazoned on the face of the playing cards. Though it’s usually simpler for customers to qualify for a retailer Credit Card than for a serious Credit Card, retailer playing cards could also be used solely to make purchases from the issuing retailers, which can supply cardholders perks similar to particular reductions, promotional notices, or particular gross sales. Some giant retailers additionally supply co-branded main Visa or Mastercard bank cards that can be utilized wherever, not simply in retailer shops.

Secured credit cards are a kind of Credit Card the place the cardholder secures the cardboard with a safety deposit. Such playing cards supply restricted strains of credit score which can be equal in worth to the safety deposits, which are sometimes refunded after cardholders reveal repeated and accountable card utilization over time. These playing cards are regularly sought by people with restricted or poor credit histories.

Just like a secured Credit Card, a pay as you go debit card is a kind of secured fee card, the place the obtainable funds match the cash that somebody already has parked in a linked checking account. In contrast, unsecured bank cards don’t require safety deposits or collateral. These playing cards have a tendency to supply greater strains of credit score and decrease rates of interest vs. secured playing cards.

Constructing Credit Historical past with Credit Playing cards

When used responsibly, common, non-secured, and secured playing cards may help customers construct a optimistic credit score historical past whereas offering a method to make on-line purchases and eradicate the necessity to carry money. Since each sorts of bank cards report funds and buying exercise to the foremost credit score businesses, cardholders who use their card responsibly can construct robust credit scores and probably lengthen their strains of credit score and—within the case of secured playing cards—probably improve to an everyday Credit Card.

Constructing good credit score historical past is a mixture of issues—making common, on-time payments, avoiding late funds, maintaining credit score utilization below your credit score restrict, and sustaining a low debt-to-income ratio. By making accountable purchases and paying them off in a well timed method, a credit score rating will rise, making a shopper extra engaging to different lenders.

How do I get a Credit Card if I don’t have any credit score?

Constructing credit score historical past generally is a little bit of a catch-22. In case you don’t have any credit score, retailers or banks are much less more likely to lengthen credit score to you because you’re an unproven borrower. Opening a secured Credit Card is among the easiest methods to get began. Since spenders are solely borrowing from the cash they put down as a deposit, there may be little risk for the lender, and it provides them a snapshot of your spending and reimbursement habits.

One other method to begin constructing credit score is to change into an authorized user on a longtime credit score account, similar to a mother or father or partner. The cardholder’s credit score historical past will seem in your account, including longevity to your credit score report. However make sure that the individual with whom you accomplice has good credit score habits. If their monetary selections are poor, that will even mirror on you.2

Do bank cards have fastened or variable annual proportion charges (APRs)?

Many bank cards could have each sorts of annual proportion charges (APRs). To search out out which form of APR you have got, learn the cardholder settlement that comes together with your Credit Card. Card issuers should legally disclose what kind of APR they’ve and what it’s. If a hard and fast APR adjustments, they need to additionally alert customers of that.3

Some bank cards have fastened APRs for purchases however variable APRs for money advances or late funds. Learn the wonderful print to verify.

What’s a Credit Card annual price?

The annual price on a Credit Card is the price charged by the cardboard issuer to increase the Credit Card to you. Some playing cards don’t cost an annual price, however others—most frequently playing cards that provide rewards or incentives like money again—can cost annual charges starting from $50 to $700.

  1. Federal Trade Commission. “Credit Card Accountability Responsibility and Disclosure Act of 2009,” Page 10.
  2. Experian. “How to Get a Credit Card If You Don’t Have a Credit History.”
  3. Capital One. “Fixed APRs vs. Variable APRs.”


Liberty Magazine requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.


Prepare and write by:

Author: Mohammed A Bazzoun

If you have any more specific questions, feel free to ask in comments.


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