How Do Credit Cards Work?

How Do Credit Cards Work?

Credit Cards are the plastic cards that help you pay your bills and to do other purchases with convenience. Also, credit cards help you build credit while offering convenience for your purchases. Credit cards along with the convenience for purchase these plastic cards help you save money in the form of cashback and reward points. These will help you earn back money after your purchase. Credit cards though look like debit cards, but both are of different types. For debit cards, you have to deposit an amount before getting the card to do a purchase, while the credit card gives you the opportunity to purchase, in this case, you will be using companies' money, and later you will be repaying the amount to the company. When compared to a debit cards, credit cards have many opportunities like earning reward points and other cashback offers also they are universally accepted than debt cards.

What is a Credit Card?

A credit card is a plastic card that helps you do purchase, pay bills depending on the type of card, or withdraw cash. In general terms, it is the physical card providing you short term loan. When you open a credit card account, the credit card company will give you a credit limit, within which you must do your purchases. that is, you have to set the limit of spending within the credit limit. If you cross the limit, you must pay more interest along the amount you have spent return to the credit card company.

How Credit Cards Work

Credit Cards helps you make a purchase either online or in stores, whenever you use a credit card the details will be sent to the merchant's bank, then the bank gets a permit from the credit card network to process the transaction, then the card issuer will decide whether to approve or decline the transaction. If all the details and terms are applicable to the cards company, they will automatically approve your transaction, if not they decline.

When the payment is approved the amount will be transferred to the merchants' account and the money from your credit account will be debited. At the end of the billing cycle, the company will be sent you a statement listing all the transactions you have done. Then they will you give all the details when to pay the amount back to the company. They also provide the available balance, the due balance, and the grace period. If you pay the due amount within the time the company will not charge you any interest if you carry the due amount to the next month, then the company will charge you interest and the due amount. Many card companies have different APRs interest rates that have tied to the Prime rates, which means the interest rates may vary at any time That is either the interest rates may rise or fall.

Credit Cards vs. Debit Cards

Though Credit card and debit card looks alike they are not the same.

Consumer will spend the Credit Card Company’s Money and will be pay back to the company.Consumer will spend the amount from their linked account. Amount from the account will be automatically deposited.
No need of cash depositCash deposit is must to get the debit card
Money must be pay back to the company.No need to pay back money, as money is automatically deducted from the consumers account.

How to Compare Credit Cards

Whenever you decide to get a credit card you need to do some survey or comparison to get the best card for yourself. The main points you must compare are the Regular variable APR for purchase, APR for transferred balances and cash advances, annual fees, reward programs, welcome bonuses, and other offers. Based on your type of usage and interest compare the Credit Cards for example, if you are a travel freak then get a travel card, in that you can earn more rewards and miles. That will be a cashback on your card. Similarly, if you do not travel much then get a card that is good for payment and offering you cashback it will be a profit on your purchase.

Credit Cards are the physical cards offering you a short-term loan for doing your purchase and helping you build your credit if you use it responsibly. Healthy financial habits will help you avoid paying interest. The best thing is to avoid paying interest is paying the credit card bill on time.