How Do Credit Cards Work?

Credit cards allow you to make purchases without having to immediately pay for them with cash or money from your checking account. Essentially, you’re using the credit card company’s money, and then you pay it back.

The credit card company (also called a credit card issuer) will send you a bill about once a month telling you how much you owe and when to send your payment by. If you can’t cover the whole bill, the issuer adds interest charges to your account. Those are the basics, but this explainer on how credit cards work will help you understand everything you need to know about the cost of carrying a credit card balance.

How Do You Choose the Best Credit Card?

Choosing a credit card requires you to take an honest look at your habits and needs, and see how those line up with the products out there. To get started, here are six tips for matching your needs to the right type of credit card.

  • Building credit? Look at secured credit cards.
  • Travelers: Consider travel reward cards or cards with no foreign transaction fee.
  • Thrifty shoppers can save big with cash-back cards.
  • Need to buy something big? Look at cards with low introductory interest rates.
  • Pay off card debt with a balance transfer card.
  • Plan for emergencies with a low-APR credit card.

Is a Credit Card Right for You?

Before you can make a decision about opening any credit card, you need to understand the value and drawbacks of credit cards as a whole.

What We Like

  • Allow you to build credit
  • Offer rewards
  • Enable you to make large purchases

What We Don’t Like

  • Could lead to debt
  • Charge costly fees
  • Are difficult to fully understand

How Do You Apply For a Credit Card?

Follow these steps to apply for a credit card:

  • Check your credit score.
  • Choose which kind of card you want to apply for.
  • Research a few different cards from different companies.
  • Decide on one to apply for.
  • Visit the card application webpage.
  • Enter your personal information, including your Social Security number and annual income.
  • Be patient. It can take a couple of weeks to receive a final decision.