A credit card is a revolving line of credit that allows you to make charges at any time up to the amount of a specific credit limit.
When you swipe your credit card, your bank loans you the money to make that purchase. Unlike a loan, which has a fixed end date and regular monthly payments, with a credit card, you choose how much to repay each month—a minimum payment, a partial payment or your entire balance. With few exceptions, responsible credit card users always pay their balances in full every month.
After you make a purchase with your credit card, the bank gives you a grace period—typically between 20 and 30 days—during which you can pay off that purchase before interest begins to accrue.
Grace periods are powerful because they give you the opportunity to use your credit card as a short but interest-free loan. As long as you pay every penny you charged last month before the due date, you won’t pay interest on credit card purchases.
Credit cards can provide great perks and allow you to earn cash back or rewards for your purchases. They also serve as tools for helping you build credit, which can be important if you want to buy a house or car one day.
But there are some risks involved in using credit cards, and if you’re opening a credit card for the first time, you may be nervous.
However, if you’re aware of the dangers of credit cards, you can avoid making these mistakes while using credit cards wisely and taking advantage of their perks, benefits and rewards.
Helpful tools when considering credit cards
Federal Trade Commission on credit cards: https://www.consumer.ftc.gov/articles/0205-using-credit-card
FBI on credit card fraud: https://www.fbi.gov/scams-and-safety/common-fraud-schemes/credit-card-fraud