What Is a Credit Card and How Does It Work?

 A credit card is a type of financial tool that allows you to borrow money from a bank or issuer to make purchases. Instead of paying immediately, you pay later, either in full or over time with interest.


Credit cards are widely used in the United States for daily expenses, credit-building and online payments.


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## How a Credit Card Works


When you make a purchase, the credit card issuer temporarily pays the merchant for you. At the end of your billing cycle (usually every 30 days), you receive a statement showing:


• Total amount spent

• Minimum payment due

• Due date

• Interest charges (if any)


If you pay your balance in full, you typically avoid interest. If you pay only the minimum, interest is added and the balance carries over to the next month.


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## Key Credit Card Terms


### **APR (Annual Percentage Rate)**

The APR represents the yearly cost of borrowing money on a credit card.


### **Credit Limit**

The maximum amount you are allowed to borrow on the card.


### **Minimum Payment**

The smallest payment you must make each month to keep your account in good standing.


### **Statement Closing Date**

The last day of your billing cycle.


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## Why Credit Cards Matter in the U.S.


Credit cards are not just for spending — they play a major role in building your credit score. A good credit score can help you:


• Qualify for apartments

• Get lower interest rates

• Get approved for loans

• Access better credit cards


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## Benefits of Using a Credit Card


• Builds credit history

• Offers rewards and cashback

• Provides purchase protection

• Helps track spending

• Allows online purchases


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## Risks to Consider


While credit cards can be useful, misusing them can lead to:


• High interest charges

• Debt accumulation

• Credit score damage


Learning how to manage your card responsibly is essential.


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## Final Thoughts


Credit cards are a powerful financial tool in the United States when used properly. Understanding how they work is the first step before comparing cards or applying for one.