A credit card is a card issued by a financial company giving the holder an option to borrow funds, usually at point sale .Credit cards charge interest and are primarily used for short-term financing . Interest usually begins one month after a purchase is made, and borrowing limits are pre-set according to the individual's credit .

A credit card can used to make purchases, reduce the cost of expensive debt or to earn rewards and cashback. It is essentially a type of loan, where the money you spend on your card is borrowed from a lender, such as a bank or building society. Interest is added to the amount you spend if you do not clear your balance at the end of each month.

How credit cards workWhen you apply for a credit card, you apply to borrow money from the card issuer, usually a bank. The issuer will look at your credit history before it accepts your application – and if you have a low credit score you could be refused credit, or perhaps given a less attractive deal.If all is well, the bank will set a credit limit, which is the maximum amount you can spend on the card. The card company will send you a statement every month, detailing the transactions on the card, plus the amount owing. It will also provide details on the minimum payment you need to make and the payment due date.

  

The credit card company then charges you interest on your purchases, though there is generally a grace period of approximately thirty days before interest is charged if you do not carry your balance over from month to month. Credit cards have high interest rates and are considered a revolving line of credit that you can use again after you pay it down. Your credit card balance and payment history can affect your credit score.