How Does a Credit Card Work?
The magic of a credit card is that it allows for people to get things today that they may need, but then pay for them later on down the road.
It is an extension of credit that is given to you by a lender if you are given a credit card and there are certain rules and specifics that must be followed to make sure you are getting the most out of the credit you’ve been given.
Here’s what you need to know about how a credit card works!
You’ll be given a credit limit.
When you receive a line of credit, you’ll be given a credit limit. This limit is the most that the lender will allow you to spend without repaying some, if not all, of the debt you’ve incurred. For first-time credit card users, a typical credit limit is $500 – $1,000. With the right amount of income and a strong credit history, credit cards can have limits of 5 and 6 figures.
You’ll be required to make minimum monthly payments.
For most credit cards, you’ll be charged a certain amount of interest every month on the purchases that you’ve made, but haven’t completely paid off. The minimum monthly payment requires you to pay off all of the interest that is charged on that debt, plus a small portion of the actual purchase cost that you made. Failing to make a payment can lower your credit score.
You’ll receive monthly statements.
Just like a bank statement, your credit card lender will provide you with a monthly statement of your purchasing activities, either through the mail or online. This allows you to verify your purchases, make sure they are accurate, and check for any suspicious activity that can be an indicator of identity theft.
These statements will also show your current APR, what your minimum monthly payment is, and some statements tell you how long it will be to pay off your debt if you just pay the minimum amount due.
You’ll be given a consistent due date.
Unlike other forms of credit or your utility bills, like your power bill, credit cards are given a monthly due date that doesn’t vary from month to month. The only exception would be a due date that fell on the 29th, 30th, or 31st of the month, since February only has 28 days.
In that specific circumstance, the February payment would be due on the 28th. Most lenders require a payment to be posted by the end of that business day for it to be considered a valid, on-time payment.
You can apply for rewards, higher credit limits, and other features.
One of the nicest aspects of having a credit card is that you can apply for better terms and limits after establishing your credit history. This helps to raise your credit score because it proves you can manage your debt effectively through progressive responsibility.
Credit cards are one of the most helpful components of establishing a credit history that is available on the market today. If you’re thinking about applying for your first credit card, keep these facts in mind so that you can properly manage your lines of credit to create a strong financial future!
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We do not provide customer service for credit cards. Contact your credit card company directly.
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