How do Credit Cards Work?

Credit cards can be used to make online or in-store purchases, withdraw cash, and for paying bills. Credit cards also offer greater convenience, and allow cardholders to save money through various cashback offers and rewards. Upon opening a credit card account, the credit card company provides you with a fixed credit limit. You can use this amount to purchase items, pay bills, or even withdraw cash if required.

How does a credit card work?

When you use your credit card for any transaction, the credit card company pays the merchant fee on your behalf. However, the available credit reduces every time you make a transaction, and you can make as many transactions and purchases as you want within the approved credit limit. You can repay the amount you spent within a stipulated period, following which the limit is restored, and any missed payments will incur compounding interest until the due payment remains outstanding.

Every month, you also get an credit card statement which gives you a detailed summary of your transactions. The account statement also highlights:

  • Available credit and cash limit
  • Minimum payment due
  • Total payment due date
  • Interest and fees charged
  • Payment methods


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