How do credit cards work?


Quick Answer

Credit cards allow an authorized user to borrow money for expenditures up to a limit established by the card provider. The available limit is based on the cardholder's credit rating, other debt, income and other personal factors assessed by the lender.

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Full Answer

To use the card, the cardholder submits it at a store or enters the card's number, expiration date and security code online. When a seller accepts credit cards as a form of payment, the payment is made at the time of purchase. Each month, the card provider sends a statement indicating the user's current balance, available funds and minimum payment. Carrying a balance from month-to-month leads to interest charges.

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