![]() ![]() If approved, the transaction will go through and money will transfer from the issuer to the merchant.Įvery billing period (approximately 28 to 31 days), you receive a statement containing all of your transactions for that period, your total balance and your minimum payment.The merchant contacts your credit card issuer through the credit card network to request an authorization for the transaction.If you're paying a bill or shopping online, you'll enter your card's information instead. You swipe, insert or tap your card at the card reader when checking out.More often than not, credit cards are used for purchases and paying bills, and a few things happen in the span of several seconds: The minimum monthly payment is due on or before the due date. Minimum payment: The minimum payment consists of a small percentage of your balance, plus accrued interest and fees.You make payments to your credit card issuer. Issuer: The bank or financial institution that gives you your credit card.Your credit card may also have different APRs for balance transfer, cash advance and purchase balances. Interest is charged during every billing cycle you have any unpaid balances. The interest rate charged by a credit card company is typically stated as a yearly rate called the annual percentage rate (APR). Interest/APR: Interest is the price you pay to borrow money.They facilitate the information transfer between merchants and issuers. Credit card network: Credit card networks authorize and process credit card transactions.Credit limit: The maximum amount you can borrow on your credit card.Balance: The amount of borrowed money on your card that you have not paid.Annual fee: The fee which some cards charge once per year for use of the card.This concept of borrowing money makes you the "borrower" and your card issuer or issuing bank the "lender." As a result, the issuer reports your payment activity to the credit bureaus, and your payment history is one factor in determining your credit score, a figure that describes your creditworthiness.īefore we explain how this works in more detail, here are some important credit card terms to know: When you agree to open an account, you agree to pay back this money to your credit card issuer. Instead, you're borrowing that money against your available credit and accumulating a balance. This means that you don't spend your money when you make a purchase using your credit card. The difference between debit and credit cards.Ī credit card is a form of revolving credit - meaning you borrow with it when you want, up to your credit limit, and pay when your bill is due.They're quite convenient and many offer the chance to earn rewards.īelow, we'll break down the things you need to know about credit cards: Credit cards are a popular way to make purchases, pay bills and even help manage debt in some cases. ![]()
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