How Do Credit Cards Work? The Beginners Guide

Still have questions about how credit cards work? Find answers below.

How do credit cards impact your credit score? 

Responsible credit card use, like making timely payments and keeping credit utilization low, can help build a strong credit history. However, late payments, high balances, and a high balance can negatively affect your credit score.

What is the best way to use a credit card?

The best way to use a credit card is to make purchases you can afford and pay off the full balance each month. This can help you avoid high-interest debt and prevent overspending. Know your card’s fees, rewards, and terms to maximize your card’s benefits.

When should you get a credit card?

You should consider getting a credit card when you have a stable source of income and the discipline to manage credit responsibly. If you understand how credit cards work and can commit to paying off your balances in full each month, a credit card can be a useful financial tool to build credit and enjoy benefits like rewards programs.

When do credit cards charge interest?  

Credit cards charge interest when you carry a balance from one billing cycle to the next. If you don’t pay off the full balance by the due date, interest charges will apply to the outstanding amount, increasing the overall cost of your purchases.

What is the minimum payment on a credit card?

The minimum payment on a credit card represents the amount you must pay by your statement due date. Your minimum payment might be a percentage of your balance or a flat dollar amount, whichever is greater. 

How do you get a credit card?

You can get a credit card by applying online or in person with a bank or credit card issuer. They will review your credit history and income to determine whether you qualify for the card. If approved, you’ll receive the card and a credit limit, which is the maximum amount you can borrow on the card.

How long does it take for a credit card payment to process?

Credit card payments typically process within a few business days, although the exact timing can vary depending on the credit card issuer and the payment method used. Make payments before the due date to avoid late fees or negative impacts on your credit score.

Do you only have to pay what you spend on a credit card?

You only have to pay what you spend on a credit card if you pay in full by your statement due date. You might also have to pay interest if you’re carrying a monthly balance. Credit card companies can also charge various annual and late payment fees.