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You’re a Credit Card Owner. Now What?

How Do Credit Cards Work?

Credit cards are like loans that you always have access to. They correspond to a line of credit that you are granted, which reflects how much money a credit card company is willing to trust you with. This could be $500 or it could be $5,000. It just depends on your situation.

The money in your line of credit is not technically your money. It belongs to the credit card issuer, or the company that gave you the card in the first place. You are allowed to use it out of trust, but you always have to pay it back. You can do this in one lump sum, or you can make payments on the account. As long as you fulfill the minimum monthly payments needed, your account will continue to be in good standing.

Credit Card Processing at a Glance

To fully understand how credit cards work, you have to know how they are processed. In other words, you need to know how money gets from your line of credit to a merchant you buy something from. Here is a quick look at the steps:

Girl with credit card slider
  • You swipe your card at a store or some other business that accepts credit cards.
  • The merchant’s machine sends a signal to a middle man (known as the acquirer), who then asks your credit card company if you have enough money for the transaction.
  • You swipe your card at a store or some other business that accepts credit cards.
  • The merchant’s machine sends a signal to a middle man (known as the acquirer), who then asks your credit card company if you have enough money for the transaction.

After a couple days of extra processing, your amount due will show up on your credit card statement, ready for you. For the most part, your end of this process only takes a couple seconds to complete, but the whole process can take weeks with some credit card companies. All you need to know is that the money you charge on your card is taken away from your available credit balance (the money you can use)

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