Easy way to understand how Credit Cards work and their benefits

how credit cards work

A credit card is a convenient option while purchasing goods and services such as gasoline, groceries, and more daily. You could also purchase big-ticket items such as TVs, travel packages, and jewelry that are not always immediately available. See how do credit cards work and check out some of the credit card features and benefits listed below.

How they work 

Credit cards can be convenient and offer the chance to save money if you earn rewards when purchasing or paying bills. Additionally, using credit cards to establish a credit history is a way to build a good credit ranking. With a credit card, you can make purchases or pay bills and withdraw cash, depending on the type of card. 

Credit cards can be viewed simply as a type of short-term loan. Credit card companies give you a credit limit when you open an account. Basically, it’s an amount of money you can spend or use to pay bills with your credit card. You should know a few credit card facts about the credit card limit increase if you have never used credit before. 

  • A credit limit is an amount you can spend on your credit card, and a later payment is required.
  • You can incur interest charges when you carry a balance on your credit card. 
  • If you’re considering a credit card promotion, be sure to read the fine print carefully.
  • When you use certain credit cards, you get rewarded with points, miles, or cashback.

Paying for bills and making purchases online can be accomplished using credit cards. The bank of the merchant receives your credit card details whenever you use either one of them. Once the credit card network has authorized the transaction, the bank is able to complete it. After verifying your information, your credit card company must either approve or decline the transaction. 

In the case of an approved transaction, your credit card’s available credit is reduced by the transaction amount. You will receive a statement from your card issuer at the end of each billing cycle with all the transactions for that billing cycle, the previous and new balances, and the minimum payment due. 

Credit card benefits 

Cash Back

In the United States, Discover first popularized the cashback credit card, which gives you 1% of your purchases back in cash. Today, it has evolved into a more sophisticated concept. 

Today, some credit cards offer cashback of 2%, 3%, or even 6% on qualifying purchases, although such lucrative offers are subject to quarterly or annual spending caps. 

Card issuers should look for cashback cards that charge low fees and interest rates and offer high rewards rates. Some card issuers offer a 2% cashback rate on all spending, but you have to deposit your money directly into an investment account.

One-Time Bonuses

Getting a new credit card comes with a bonus opportunity like no other. Many credit cards offer bonuses for spending a certain amount in the first few months of opening the account if the applicant has good credit or excellent credit.

Some cards offer bonus rewards such as gift cards, merchandise, statement credits, or checks as a means of attracting applicants. An everyday bank checking account debit card, in contrast, generally does not offer an initial bonus or ongoing rewards opportunities.

Rewards Points

Cardholders earn a certain number of points on every dollar they spend using their credit cards. With reward credit cards, you can accumulate bonus points, credit card limit increases for certain types of spending, like dining out, groceries, or petrol. You can redeem points acquired at certain earning thresholds for travel, gift cards for restaurants and retailers, or merchandise items through the credit card company’s online rewards portal.


It is easier when you know how credit cards work to avoid fraud losses when you use a credit card. A thief who uses your debit card immediately makes money disappear from your account. You may be subject to insufficient funds fees if you schedule online payments or mail checks for a legitimate expense that bounces. 

This bounce could affect your credit score even if you were not responsible for the missed or late payments. It may take a while for the bank to reverse fraudulent transactions and restore your money in your account while investigating.

A fraudulent credit card charge does not result in a loss of any money. As soon as you discover the fraud, you should inform your credit card company and do not pay for the transactions you didn’t make.

Travelers benefits

Travelers can also benefit from credit cards. Some car rental companies and hotels may require a credit or debit cardholder. Usually, this process takes between one and five days, and the amount of the holder is not available for use during this time. Having a credit card can provide you with the necessary funds at the time they are needed because you may not have the funds in your bank account.

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By Michael Caine

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