How Do Credit Cards Work For Dummies

The better your credit and the higher your income the higher your credit limit may be.

How do credit cards work for dummies. The amount you have. Unsecured because there is no asset as collateral such as a car or home and revolving because you can use the card on an ongoing basis unlike say a personal loan that you use and pay off over a set term. You can use your credit card until you ve borrowed up to your credit limit. Each credit card has a credit limit which is the maximum amount you can owe the bank at one time.

Debit cards are mostly free or tell you if there s a charge. When a bank gives you credit it lets you buy things now and pay for them later. Use credit cards if you want a secure and convenient way to pay. A credit card is a small plastic card that lets you borrow money from a financial provider.

Cash back works as you would expect. A credit card is a thin plastic card usually 3 1 8 inches by 2 1 8 inches in size that contains identification information such as a signature or picture and authorizes the person named on it to charge purchases or services to his account charges for which he will be billed periodically. The best credit cards generally reserved for people with good to excellent credit offer valuable rewards for your everyday purchases. Read about how to increase your credit limit here.

So when you use your credit card you haven t spent money out of your own pocket. Instead you ve borrowed money from your bank to pay for your purchase. A credit card works as an unsecured revolving line of credit. Let s start at the beginning.

Do a comparison of credit cards fees rates aprs and balance calculation methods before you accept even a preapproved credit card. For example if you have a 5 000 credit limit you ll be allowed to charge any amount you want up to that 5 000 limit. Credit and debit cards work differently at cash machines. You typically see 1 2 cash back for all of your purchases.

Fees can be as much as 5 per withdrawal. The federal truth in lending act makes it easy to compare credit card offers because it requires credit card companies to provide written information about the credit card terms. The amount of money you can spend on your card at one time or the size of your ongoing loan. If you use your credit card you might pay a fee every time you take out cash and you might not be warned of the extra cost when you use the machine.

Later you ll repay your bank for what you ve bought. It s determined by the credit card issuer.