Credit Card Center: Welcome to FinStream’s Credit Card Center, where you can find free videos to help you learn about your options for credit cards and how to build good credit.
Credit cards are financial tools that allow cardholders to borrow money from a credit card issuer up to a predetermined credit limit to make purchases, pay bills, or access cash advances. When using a credit card, the cardholder is essentially borrowing funds from the issuer with the promise to repay the borrowed amount, plus any applicable interest and fees, within a specified period.
Here’s how credit cards work:
- Application: To obtain a credit card, individuals typically need to apply with a credit card issuer, such as a bank or financial institution. The application process may involve providing personal information, such as name, address, income, and social security number, as well as consenting to a credit check to assess creditworthiness.
- Approval and Credit Limit: Based on the individual’s credit history, income, and other factors, the credit card issuer determines whether to approve the application and assigns a credit limit—the maximum amount of credit that the cardholder is allowed to borrow on the card.
- Card Activation: Once approved, the cardholder receives the credit card in the mail and must activate it by following the issuer’s instructions, typically by calling a toll-free number or visiting the issuer’s website. Activation confirms receipt of the card and verifies the cardholder’s identity.
- Card Usage: Cardholders can use their credit cards to make purchases in person, online, or over the phone at merchants that accept credit cards. They can also use the card to access cash advances from ATMs or financial institutions, although cash advances often come with higher fees and interest rates than purchases.
- Billing Cycle: Credit card issuers typically establish a billing cycle—a specific period, usually monthly—during which the cardholder can make purchases using the credit card. At the end of each billing cycle, the issuer generates a statement that summarizes the cardholder’s transactions, outstanding balance, minimum payment due, and payment due date.
- Repayment Options: Cardholders have several options for repaying their credit card balances:
- Full Payment: Paying the full statement balance by the due date avoids interest charges.
- Minimum Payment: Paying the minimum amount due by the due date keeps the account in good standing but may result in interest charges and the accrual of additional debt.
- Partial Payment: Paying any amount between the minimum payment and the full balance.
- Revolving Balance: Carrying a balance from one billing cycle to the next, subject to interest charges on the unpaid balance.
- Interest and Fees: If the cardholder carries a balance on their credit card beyond the grace period (the period between the end of the billing cycle and the due date), the issuer may assess interest charges on the outstanding balance. Additionally, credit cards may have various fees, such as annual fees, late payment fees, cash advance fees, and foreign transaction fees.
- Credit Score Impact: Responsible credit card usage, such as making timely payments and maintaining low credit card balances relative to the credit limit, can positively impact the cardholder’s credit score. On the other hand, missed payments, high credit card balances, and other negative factors can negatively affect credit scores.
- Rewards and Benefits: Many credit cards offer rewards programs, such as cashback, travel rewards, or points-based rewards, as well as additional benefits like purchase protection, extended warranties, travel insurance, and concierge services.
Overall, credit cards can be valuable financial tools when used responsibly, offering convenience, flexibility, and potential rewards. However, cardholders should be mindful of their spending habits, repayment obligations, and the terms and conditions of their credit card agreements to avoid accumulating debt and incurring excessive fees and interest charges.
Watch these free videos about building your credit in FinStream’s Credit Card Center.
