How do Credit Cards Work? – Things You Should Know about Credit Cards

how do credit cards work
how do credit cards work

How do credit cards work? This is a question people ask if they know nothing about credit cards and their functions. Luckily, we’ve created this post to answer all your questions.

A credit card helps users to get credited, making payment convenient in other to meet daily costs in life.

When you try to get knowledgeable information on how credit cards work, it reveals to you the benefit of knowing why you should have a credit card over a debit card.

In addition, knowing how it works helps in getting you useful awareness on dealing with your debit more maturely.

The credit card offers a relation to credit that can be useful in making purchases, help balance transactions, and other important banking act.

While it is important to make some purchases or pay necessary bills, a credit card is in a position to offer both the potential to spend less in other to save money, also making the transaction very convenient for you.

You can also use a credit card to create a credit history through a healthy financing habit.

While the credit card and debit looks similar, the function they perform is very different, if you are new to using the credit card, then here are some vital credit card facts you should know;

  1. Credit cards have limitations on how many times you can make purchases, in this case, you have to come back to make your purchase in later days.
  2. Having a balance on the credit card may not prompt interest charges
  3. On a credit card promotional offer, it is very important for individuals to read the fine text carefully.
  4. In some cases, a credit card will allow you to earn some reward on any purchase you made. This reward is in form of miles, points, or even cash back.

What is a Credit Card?

how do credit cards work

A credit card is a visible card, mostly rectangular in shape, it can be used to make a purchase, pay the necessary bills, withdraw cash, and do lots more functions.

The first time you open your credit card, the credit card company you opened it with will give you a fixed credit limit.

The fixed credit limit is the amount of money your credit card company will allow you to use while making some purchases or paying bills.

Your existing credit will decrease as you buy stuff with your card, you will have to pay back the amount you have spent by using your credit card limit.

You are paying this to the credit card issuer.

The most certain way to define a credit card is by referring it to as a short-term loan.

How a Credit Card Works

how do credit cards work

If you have been following this content, then you should know that a credit card is used for making transactions such as buying things, paying bills, and withdrawing cash.

When you use your credit card for one of the aforementioned functions, your card information will then be sent to the merchant bank.

This bank will have to get approval from your credit card network, this is necessary in other to process the transaction.

After this information has been sent and authorized, the card issuer will have to confirm your card information; this will help the issuer either to decline or approve your transaction.

If your transaction is approved, the payment will be sent to the merchant, and your card-accessible money will be reduced.

The amount left will be determined by the amount of transaction you made.

But if the transaction was declined, this means your payment was not successful, this may be as a result of a banking issue. Sometimes your credit card may be at fault.

After the successful transactions of the month, your card issuer will send you a statement of account, showing you all the approved transactions you have made in that month.

This statement is mostly sent at the end of the month…

The information in it entails your previous balance and new balance, how you spent your money, this report is very transparent enough.

Speaking about paying back, you have the fixed amount your card issuer has given you when you make your payment in full on or before the grace period (the grace period can be referred to as the period of time stuck between the date you purchased your credit card and the due time you have to pay back), there is no interest attached to it.

The only reason you will get charged with some interest is when you carry your payment month over month.

How much does Credit Card interest cost?

how do credit cards work

Most people refer the evil of a credit card as the interest…

But you have to know that you pay interest only if you do not meet up by making your payment in due time.

In case you may be paying late, the interest you will be paying seems to be on a high rate, you have to pay an average APR of 14%.

For instance, if you get a credit card worth $10,000, you have to pay 14% of $10000.

This varies, as some card issuers charge lesser or higher.


I believe the question “how do credit cards work” has been answered correctly.  The credit card can be seen in the way of a short-term loan, it helps you borrow some cash in other to sustain yourself.

The money you borrowed has a limitation, this means you cannot spend more than the fixed price that comes with your credit card.

The bad news here is that you will be charged some interest if you do not pay your money in due time, so you have to keep to time if you want to outsmart their additional fee.

Now, I need your opinion, like what do you think about the credit card, if you have used this mode of transition in your country, then feel free to share with us your experience, let us know if a credit card is a thumb up or thumb down for you.

After you have gotten the full details of how a credit card works and you still have questions to ask, drop them in the comment box. I will do well to answer each of your questions that talk about credit card.

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