What is a credit card?

Credit cards are financial payment tools that allow cardholders to borrow money and pay for purchases on the condition that they will pay back the amount borrowed plus interest by a specified date. When used wisely, credit cards can be one of the most powerful and effective personal finance tools available. However, they also carry significant risks and should be treated with care. Getting to know the pros and cons of credit cards can help you decide whether or not they make sense for your financial goals and circumstances. 카드깡

A credit card is a plastic card that is issued by a bank or other financial services company. It is a form of revolving credit that provides a line of credit up to a predetermined limit, which is determined by the card issuer. The amount you have spent on the card is reflected in your monthly statement as an outstanding balance. The card can be used at merchants that accept credit cards or online retailers and is backed by the bank’s lending risk.

The card is encoded with information about the cardholder, including their name and account number, and is embedded with a magnetic stripe on the back to enable its use in point-of-sale transactions or with mobile phone apps. It can include the cardholder’s signature, a security code known as a CVV (card verification value), and an expiration date. Historically, the card number and name were embossed on the front of the card, but this practice has declined in favor of digital information storage systems that can be more secure.

Many credit card companies offer rewards programs, which give cardholders points that can be redeemed for travel, merchandise or cash back on card purchases. They may also provide introductory interest-free periods and other perks. In addition, some cards are prepaid, meaning that the card is loaded with funds that the cardholder already has in their bank account. These cards are sometimes called prepaid debit cards and are often sought by individuals with poor or limited credit histories.

Other types of credit cards include secured credit cards, which require security deposits and allow cardholders to draw lines of credit up to amounts equal to the security deposit; and unsecured credit cards, which are typically favored by individuals with strong credit histories. Purchases made on credit cards that are viewed as cash advances in accordance with the rules of a particular card network typically incur higher fees and interest rates than those of regular purchases.
How does a credit card work?

A credit card is a form of revolving debt that lets you borrow money to make purchases or pay bills. When you use your card, the amount you charge is added to your total balance. You then repay some of the loan, plus interest, by the end of each billing cycle. There are many different types of credit cards, but they all work in roughly the same way. Each card has a set credit limit, which is the maximum amount of money that the card company will let you spend.

When you make a purchase with your card, the merchant's bank sends your card details to the credit card network. The networks — Visa, MasterCard, Discover and American Express — verify the card information and then process the transaction. The card networks also calculate a U.S. dollar amount based on the currency conversion rate in effect when they process the transaction.

After the credit card networks process a transaction, the card-issuing banks (also known as card issuers) review it to ensure that it meets certain criteria. These include ensuring that the cardholder has sufficient income or assets to repay the loan, and that the credit card limit is appropriate for the cardholder's spending habits and circumstances.

If the card issuer approves a credit card application, it will then set the card's limit and other terms. Some cards may have a minimum monthly payment requirement, and some may even require a security deposit to open. Credit card companies are generally required to provide consumers with a detailed statement each month, which includes all transactions that have been posted, the total balance, and the minimum monthly payment due.

Some card transactions are considered quasi-cash* or cash advances in accordance with the card-issuing network's guidelines, which means that you will be charged a higher interest rate and do not enjoy the benefit of a grace period. These transactions typically include prepaid cards, money orders and lottery tickets, as well as mobile payments and some taxes and fees paid to governments.

Each card also has its own set of fees, which you can view in your online account. For example, some cards charge a processing fee when you make a transaction, while others have over-the-limit fees or late fees that are applied to the account if your payment isn't received by the card's due date.