Credit Card
BeginnerA credit card is a payment card that lets you borrow money from the card issuer, up to a set limit, to pay for purchases, with the option to repay in full or over time with interest.
When you pay with a credit card, the card issuer pays the shop and you owe the issuer. Each month you receive a statement showing what you owe. If you pay the full balance by the due date, you usually pay no interest on purchases. If you pay only part of it, interest is charged on the remaining balance, often at a high rate.
For example, a card with a 20% annual rate charges about 1.67% a month on any balance carried over. A 2,000 balance left unpaid for a year could cost around 400 in interest, or more with compounding.
Credit cards offer convenience, protection on purchases in many countries, a way to build a credit history and sometimes rewards such as cashback or air miles. They can also help spread the cost of an unexpected expense.
The risks come from carrying balances. High interest rates, fees for late payment or cash withdrawals and the ease of overspending can lead to growing debt. Paying the full balance each month, or as much as possible above the minimum, is the key to using credit cards well.
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