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A credit card allows you to borrow money from your bank to make your purchases, whether you’re buying a burger or a round-trip ticket to France. As long as you pay back the money you borrowed within the “grace period” of 25-30 days, you don’t have to pay extra. If you don’t pay it back in that time period, you’ll have to pay interest — a percentage of the money you owe the bank — on top of what you borrowed.

How credit cards work

When you apply for a credit card, you apply to borrow money from the card issuer, usually a bank. The issue 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.

Credit  card limits

Credit Cards come with spending limits. These limits are decided based on your credit rating. Card issuers use this to determine your suitability for a Credit Card. As you continue to use your Credit Card, your credit score improves – making it easier to get a higher credit limit.Charge Cards have no credit limits. Instead, they have higher penalty fees which encourage you to pay the balance in full each month. Providing you pay the balance each month, you can enjoy unlimited credit without charges. Like Credit Cards, Charge Cards when used responsibly, help to increase your credit score.

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