What is a credit card?
A credit card is a payment card issued by a financial institution, such as a bank or credit card company, that allows cardholders to borrow money up to a predefined credit limit to make purchases or cash advances. Unlike debit cards, which withdraw funds directly from the user's account, credit cards work on the concept of a short-term loan. Cardholders are essentially using the issuer's money with the agreement to repay the borrowed amount, usually with interest if not paid in full by the due date.
Credit cards offer various advantages, such as the ability to earn rewards, benefit from purchase protection, extended warranties, and travel perks. However, they also come with the risk of accruing interest, fees, and potential negative impacts on one's credit score if not managed responsibly. Cardholders receive a monthly statement that details their transactions, and they can choose to pay off the balance in full, make a minimum payment, or pay any amount in between. It's important to note that carrying a balance from month to month incurs interest charges and can contribute to a growing debt.