How Credit Cards Work

Real Estate Technology with The Lending Times

This article comes from my website, but I feel it's important to spread the word. Especially for the younger generations. I wish they would've taught us stuff like this in school. Some "real world" learning.


A credit card is like special money you can use to buy things. Instead of using real money, you can use a credit card to pay for something you want to buy. When you use a credit card, you’re borrowing money from a company and have to pay it back later. Therefore, knowing how credit cards work is vital to financial success.

In short, this article will go over these steps:

  • You get a credit card from a company: To get a credit card, you must apply with a company, like a bank or a credit card company. They will ask you questions to ensure you can repay the money.
  • You can use a credit card to buy things: Once you have a credit card, you can use it to pay for things you want. You can use it to buy stuff in stores, online, or over the phone.
  • You must pay the credit card company back: Each month, the credit card company will send you a bill. It will show you how much money you have to pay back for the things you bought with your credit card. You have to pay the bill on time, or you might have to pay a fee.
  • You can use your credit card to build credit: Using it responsibly and paying your bills on time can help you build good credit. Good credit can make it easier for you to borrow money in the future, like when you want to buy a house or a car.

By using a credit card responsibly and paying your bills on time, you can use it to buy the things you want and build good credit.

Credit Card Application Process

The application process for a credit card typically involves filling out an application form, either online or in person, and providing certain personal and financial information. Here are the general steps involved in the credit card application process:

  1. Choose a credit card: Start by comparing different offers and choosing the one that best meets your needs and financial situation.
  2. Gather required information: To apply for a credit card, you’ll need to provide certain personal and financial information, such as your name, address, employment information, and income. You may also need to provide information about your existing debts and credit history.
  3. Apply: Once you have all the required information, you can submit your credit card application online, over the phone, or in person at a bank or credit card issuer.
  4. Wait for a response: The credit card issuer will review your application and determine whether to approve or deny your request. This process typically takes a few days to a week.
  5. Activate your credit card: If your application is approved, you’ll receive your credit card in the mail along with instructions for activating it. You’ll need to activate your credit card before starting to use it.
  6. Start using your credit card: Once your credit card is activated, you can start using it to make purchases and pay bills. Be sure to use your credit card responsibly by only charging what you can afford to pay off in full each month. Paying your bills on time helps to avoid late fees and damage to your credit score.

Understanding Your Monthly Statement

Your credit card statement summarizes your credit card activity during a billing period, including any purchases, balance transfers, and payments you made. It’s important to understand your credit card statement to track your spending, ensure all charges are accurate and make timely payments. Here are some key terms and features to look for on your credit card statement:

  • Account summary: This section overviews your credit card account, including your current balance, minimum payment due, and payment due date.
  • Transactions: This section lists all charges and payments made to your credit card during the billing period. It should include the date, description, and amount of each transaction.
  • Interest and fees: This section lists any interest charges or fees incurred during the billing period, such as a late payment or balance transfer fee.
  • Credit limit: Your credit limit is the maximum amount you can charge on your credit card. Your credit card statement should include your current credit limit.
  • Payment information: This section provides details on how to make a payment on your credit card, including the payment due date and the minimum amount due.

It’s important to review your monthly credit card statement to ensure all charges are accurate and make timely payments to avoid late fees and damage to your credit score. Suppose you notice any errors or discrepancies on your credit card statement. In that case, you should contact your credit card issuer immediately to resolve the issue.

Using a Credit Card for Purchases 

Using a credit card for purchases is a simple process that allows you to make purchases without having to carry cash or write a check. Here’s how it works:

  • Choose a credit card: Make sure you have a credit card that you can use for the purchase you want to make. Some merchants may not accept certain types of credit cards, so it’s a good idea to check before you make a purchase.
  • Make a purchase: When you’re ready to make a purchase, present your credit card to the merchant and let them know you’d like to pay with your credit card.
  • Authorize the purchase: The merchant will process the purchase by running your credit card through a card reader or manually entering the card information into their system. The credit card issuer will verify that you have sufficient credit available to cover the purchase and authorize the transaction.
  • Sign the receipt: If the purchase is approved, the merchant will provide you with a receipt to sign. You’ll need to sign the receipt to confirm that you made the purchase.
  • Please keep track of your purchases: It’s important to keep track of your credit card purchases so you can stay on top of your spending and make timely payments. You can do this by regularly keeping track of your receipts or reviewing your credit card statement.

Using a credit card responsibly allows you to take advantage of the convenience and benefits of credit while avoiding debt and maintaining a good credit score.

Credit Card Security

Credit card security refers to the measures taken to protect credit card information and prevent fraud. Credit card fraud can occur when someone uses your credit card information without permission to make unauthorized purchases or access your credit. Therefore, credit card security is essential to protect your financial well-being and to ensure that your credit card information is not misused.

There are several measures that credit card issuers and merchants take to ensure credit card security. These may include using secure servers to protect your credit card information when you make online purchases, requiring a personal identification number (PIN) for certain transactions, and using chip technology to create a unique code for each transaction to help prevent fraud.

As a credit card holder, there are also steps you can take to protect your credit card information and prevent credit card fraud. These may include keeping your credit card safe, not sharing your credit card information with others, and monitoring your credit card statements for any unauthorized charges.

Protecting your credit card information and being vigilant about potential fraud can help ensure your credit card’s security and financial well-being.

Credit Cards with EMV Chips

EMV chip cards, also known as “smart cards,” are credit cards that contain a microprocessor chip that stores and processes information. These chips are designed to make credit card transactions more secure by creating a unique code for each transaction, making it more difficult for fraudsters to skim or replicate the card.

How EMV chip credit cards work:

  • Card insertion: To process a transaction with an EMV chip card, the card must be inserted into a card reader. The card reader prompts users to enter their PIN or sign for the purchase.
  • Chip activation: When the card is inserted into the card reader, the chip is activated and begins communicating with the card reader.
  • Data exchange: The chip and the card reader exchange information to confirm that the card is valid and the transaction is authorized.
  • Transaction processing: If the transaction is approved, the chip generates a unique code that is used to process the transaction. This unique code cannot be used again, making it more difficult for fraudsters to skim or replicate the card.
  • Card removal: Once the transaction is complete, the card is removed from the card reader, and the process is complete.

EMV chip cards are widely used around the world and are considered to be more secure than traditional magnetic stripe cards. Using an EMV chip card can help protect your credit card information and reduce the risk of credit card fraud.

Missing Payments

Suppose you miss paying your credit card for one month. In that case, taking action as soon as possible is vital to avoid further consequences. Here’s what could happen if you miss a credit card payment:

  • Late payment fees: Your credit card issuer may charge a late payment fee if you don’t pay your credit card bill on time. This fee can be significant, so paying your credit card bill on time is important to avoid this charge.
  • Interest charges: If you carry a balance on your credit card from month to month, you’ll accrue interest on that unpaid balance. Missing a payment can cause your interest charges to increase, which can make it harder to pay off your credit card debt.
  • Credit score: Missing a credit card payment can hurt your credit score. Payment history is a significant factor that affects your credit score, and late or missed payments can damage your credit score.
  • Credit card issuer actions: If you consistently miss credit card payments, your credit card issuer may take action to recover the unpaid balance. This could include increasing your interest rate, reducing your credit limit, or even closing your credit card account.

Paying your credit card bill on time is important to avoid these consequences. If you’re having trouble making your credit card payments, you should contact your credit card issuer to discuss your options. They can work with you to develop a payment plan or adjust your payments to make them more manageable.

Credit Card Myths

Many myths and misconceptions about credit cards can lead people to make poor financial decisions. Here are a few credit card myths that people shouldn’t believe, along with what they should do instead:

Myth: “Carrying a balance on your credit card is good for your credit score.”

Fact: Carrying a balance on your credit card can harm your credit score. Credit utilization, which is the amount of credit you use compared to your credit limit, is a factor that affects your credit score. Using a high percentage of your credit limit can hurt your credit score. Try to pay off your credit card balance in full each month to avoid accruing interest on your unpaid balance.

Myth: “You should always choose the credit card with the lowest interest rate.”

Fact: While a low-interest rate is important, it’s not the only factor you should consider when choosing a credit card. Other factors, such as rewards programs, fees, and credit limits, can also impact your financial situation. Therefore, it’s important to compare different credit card offers and choose the one that best meets your needs and financial situation.

Myth: “You should cancel credit cards you’re not using.”

Fact: Canceling credit cards you’re not using can have a negative impact on your credit score. The length of your credit history is a factor that affects your credit score, so having a more extended credit history is ideal.


As I mentioned before, this is from my website, so I didn't post the entire thing, but I'll source the original article. There's much more to read if you want to check it out. 

Original article at: How Credit Cards Work

Comments (3)

Roy Kelley
Retired - Gaithersburg, MD

Thank you very much for following my blog. Your comments are always welcome.

Mar 11, 2023 03:05 PM
Charles Ross - eXp Realty LLC
eXp Realty LLC Salina Group - Salina, KS
Love To Help People

Excellent Information. Thank you for sharing. Have a wonderful day and a blessed weekend.

Mar 12, 2023 03:46 AM
Bill Salvatore - East Valley
Arizona Elite Properties - Chandler, AZ
Realtor - 602-999-0952 / em:


Welcome to the Rain. Enjoyed your blog page, and I added you as a friend. I would love the follow back. Bill

Mar 12, 2023 06:40 AM