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Credit Cards

What is a Credit Card?

paying with a credit card

Different Types of Cards

Most businesses let customers make purchases with credit cards, as well as debit cards or prepaid cards. Even though you use the cards similarly in a transaction, they have key differences. When you use a debit card, you withdraw funds that you deposited into a checking account. When you use a credit card, you borrow money to complete the transaction, and the issuer typically charges you interest if you don't pay the money back by the next statement period.

Credit Cards

With a credit card, you borrow money that must be paid back. If the balance is not fully paid by the due date, you will incur interest charges and possible fees. Credit cards can help build credit history when used responsibly and may offer additional consumer protections for purchases. Your eligibility for certain credit cards and the interest rate you’re offered may depend on your credit score range.

Debit Cards

A debit card is directly linked to your credit union or bank account, so money is deducted immediately when you make a purchase. While great for everyday purchases, debit cards are considered less beneficial than credit cards for major purchases or buying items online, as they offer more limited protections in cases of unauthorized transactions or disputes.

Prepaid Cards

Prepaid cards are not tied to a bank or credit union account. With a prepaid card, you spend money that you previously loaded onto the card. Prepaid cards include “general purpose reloadable” (GPR) cards, which carry the logo of a payment network (such as Visa or MasterCard) and can be used wherever that network is accepted. Other examples of prepaid cards include store gift cards and payroll cards for employers to deposits your paycheck.

Rewards Credit Cards

Rewards credit cards offer benefits each time you make a purchase with your credit card. Rewards may include earning cash back, travel rewards, or store credits. These cards generally require good credit to obtain them and are best suited for those who pay off their balance in full each month to avoid interest charges and ensure that you reap the full rewards.

Understand Your Credit Card Statement

Review the credit card statement sections to learn about the different sections of a credit card statement and familiarize yourself with common terms and information that appear on your monthly statement.

Summary of Account Activity: This section includes a summary of the transactions on your account like payments, credits, purchases, balance transfers, cash advances, fees, interest charges, and amounts past due. It will also show your new balance, available credit (your credit limit minus the amount you owe), and the last day of the billing period (payments or charges after this day will show up on your next bill).

sample summary of account activity

Payment information: Your total new balance, the minimum payment amount (the least amount you should pay), and the date your payment is due. A payment generally is considered on time if received by 5 p.m. on the day it is due. If mailed payments are not accepted on a due date (for example, if the due date is on a weekend or holiday), the payment is considered on time if it arrives by 5. p.m. on the next business day.

Example: if your bill is due on July 4th and the credit card company does not receive mail that day, your payment will be on time if it arrives by mail by 5 p.m. on July 5th.

Late Payment Warning: This section states any additional fees and the higher interest rate that may be charged if your payment is late.

Minimum Payment Warning: This section offers an estimate of how long it can take to pay off your credit card balance if you make only the minimum payment each month, and an estimate of how much you likely will pay, including interest, in order to pay off your bill in three years (assuming you have no additional charges). For other estimates of payments and timeframes, see the Credit Card Repayment Calculator.

sample payment information

Notice of Changes to Your Interest Rate: If you trigger the penalty rate (for example, by going over your credit limit or paying your bill late), your credit card company may notify you that your rates will be increasing. The credit card company must notify you at least 45 days before your rates change.

sample notice of changes to your interest rate

Important Changes to Your Account Terms: If your credit card company is going to raise interest rates or fees or make other significant changes to your account, it must notify you at least 45 days before the changes take effect.

sample important changes to your account terms

Transactions: A list of all the transactions that have occurred since your last statement (purchases, payments, credits, cash advances, and balance transfers). Some credit card companies group them by type of transactions. Others list them by date of transaction or by user, if there are different users on the account. Review the list carefully to make sure that you recognize all of the transactions and that there are no unauthorized transactions or other problems.

Fees and Interest Charges: Credit card companies must list the fees and interest charges separately on your monthly bill. Interest charges must be listed by type of transaction (for example, you may be charged a different interest rate for purchases than for cash advances).

Year to Date Totals: The total that you have paid in fees and interest charges for the current year. You can avoid some fees, such as over-the-limit fees, by managing how much you charge, and by paying on time to avoid late payment fees.

 

sample transactions list

Interest Charge Calculation: A summary of the interest rates on the different types of transactions, account balances, the amount of each, and the interest charged for each type of transaction.

sample interest charge calculation

Unauthorized Transactions

Federal Laws that Protect Cardholders

Frequently Asked Questions

Last Modified on 02/04/25