How do Credit Cards Work?

When you use a credit card, you are taking money on credit from the issuer. This is similar to a loan, where you have to pay interest on the loan amount. However, this is applicable only if you don’t pay the entire credit card amount due. If an amount is pending at the end of the payment period, you will be charged interest on it.

Credit cards can be used to make online and in-store purchases, withdraw cash and for paying day-to-day utility bills. Credit cards also offer greater convenience and allow cardholders to save money through various cashback offers and rewards.

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:

 

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