In today’s economy, a credit card is an important financial tool that is often necessary to build credit, set up accounts and make certain purchases. In the United States, approximately 174 million adults have at least one credit card – yet many do not understand how do credit cards work. Knowing the fundamentals of how credit cards work can help you use them wisely.
What is a Credit Card?
The first step to answering the question, how do credit cards work, is understanding what a credit card is. A credit card is essentially an account that permits you to borrow money from a bank or credit union to make purchases. If you pay back that money within a set period of time, typically 25 to 30 days, then the money is paid back and that is that. Credit cards come with interest rates which are charged on outstanding balances. So if you do not pay back the full amount, then you will owe the bank interest on top of what you borrowed. […]
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