What Is a Credit Card?

Quick Answer

A credit card is a revolving line of credit that you can use, pay off and use again. Credit cards may also offer various benefits, including rewards, insurance, fraud protection and more.

A woman standing against a blue background, holding her digital tablet in one hand and her credit card in the other.

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A credit card is a type of credit that allows you to borrow money, repay it and borrow again. When used wisely, a credit card can be one of the most effective financial payment tools available, and it's possible to enjoy many of the benefits credit cards offer without paying interest.

If you're considering a credit card, here's what you need to know.

What Is a Credit Card?

Credit cards are payment cards that you can use to make purchases online and at the point of sale. When you use a credit card to pay for goods or services, you authorize the credit card company to make the purchase for you, with the promise to pay the exact amount back at a later date.

The credit card issuer will log each purchase you make and add it to your monthly statement. At the end of each statement cycle, you'll receive a list of your transactions and a minimum amount due. You'll then have until the due date—at least 21 days after the statement date—to pay at least the minimum amount.

If you pay off your balance in full each month, you can avoid interest charges. But if you carry a balance, the card issuer will charge interest on the remaining amount.

You can also use a credit card for other purposes, such as transferring a balance from another credit card or getting a cash advance. However, these transactions typically come with upfront fees, and they don't qualify for the same interest-free grace period that you get with purchases.

As you use your credit card and make payments, most major credit card companies report your activity to the credit bureaus—Experian, TransUnion and Equifax. The record of how you use your credit card can help you build your credit history.

Common Credit Card Terms

As you research different credit cards, you'll run into a number of terms you may or may not be familiar with. Here are some of the most common ones:

  • Credit limit: Your card's credit limit dictates how much you can spend on the account. Once you reach your credit limit, your card issuer may decline all other charges until you pay down some of your balance. Your credit limit will be determined based on your credit history, income and other factors.
  • APR: The annual percentage rate (APR) on a credit card is the same as its interest rate, and it's typically variable, so it can fluctuate along with market rates. Credit cards may charge different APRs for purchases, balance transfers and cash advances. Additionally, if you miss a payment by 60 days or more, you may be charged a penalty APR. Some cards offer introductory APRs on purchases or balance transfers that can be as low as 0%.
  • Annual fee: Some credit cards charge an annual fee for the privilege of owning the card. Annual fees are common among travel rewards credit cards and credit cards for borrowers with poor and fair credit.
  • Other fees: Credit cards also typically charge fees for balance transfers, cash advances and foreign transactions, as well as for late and returned payments.

What Information Appears on a Credit Card?

Once you receive a physical card, you'll see various elements, including the following:

  • Issuer logo: The credit card issuer's logo may be on the front or the back of the credit card—think Capital One or Chase.
  • Payment network logo: While your credit relationship is with the card issuer, your charges are processed by one of the four major payment networks. As such, you'll see an American Express, Discover, Mastercard or Visa logo on the front or back of the card.
  • EMV chip: The EMV chip, which you'll find on the front of the card, stores encrypted credit card data, allowing you to make point-of-sale purchases more securely.
  • Contactless symbol: Some credit cards use short-range wireless technology to allow you to tap your card to a compatible card reader instead of swiping or inserting it. The symbol looks similar to a Wi-Fi symbol, and you'll find it on the front or back of the card if your card has this feature.
  • Magnetic strip: On the back of the credit card, you'll find its magnetic strip, which contains your credit card information, albeit less securely than the EMV chip.
  • Your name and account number: Your name as it appears on your credit card application appears on the front or back of the card, as well as your account number. If you're unsure which payment network your card runs on, look at the first figure of your card number. If it's a three, it's an American Express card; if it's a four, it's a Visa card; if it's a five, it's a Mastercard card; and if it's a six, it's a Discover card.
  • Expiration date: Your card expiration date shows merchants the month and year when your credit card is no longer usable. Before the expiration date, your card issuer will send you a new card. It may be on the front or back of the card.
  • CVV code: Short for card verification value, it'll be a three-digit number on the back of the card if you have a Discover, Mastercard or Visa card. If you have an American Express card, it's a four-digit number on the front of the card.
  • Customer service phone number: The card issuer provides a customer service number on the back of the credit card, which you can call if you have questions or a problem to resolve.
  • Signature box: Credit cards include a field where cardholders are encouraged to sign their name.

Credit card visual.

Types of Credit Cards

There are several different types of credit cards you can choose from, each with its own set of features. Here's a quick summary of each one:

  • Rewards credit card: A rewards credit card offers value in the form of cash back, points or miles on your everyday purchases. In some cases, they may also offer welcome bonuses and other perks. Some rewards credit cards are issued in partnership with an airline and hotel brand, allowing you to earn rewards and benefits with the co-branded partner.
  • 0% intro APR credit card: These credit cards offer introductory 0% APR promotions on purchases, balance transfers or both. Promotional periods can last anywhere between six and 21 months, depending on the card.
  • Secured credit card: Designed for borrowers with poor, limited or no credit, secured credit cards require an upfront security deposit to get approved.
  • Student credit card: Tailored to college students, these cards allow eligible borrowers who are new to credit to establish their credit history and possibly even earn rewards and other benefits without a security deposit.
  • Retail credit card: Also called a store credit card, retail credit cards are issued in partnership with individual retailers and may offer specific rewards and benefits when you shop with the co-branded retailer. While most retail credit cards can only be used with the co-branded retailer, some allow you to use your account anywhere.
  • Premium credit card: A premium credit card can offer perks you don't often see with typical credit cards. These perks include things like airport lounge access, travel or dining credits, access to special events, concierge services, additional insurance coverage and more. These cards often come with a higher annual fee.
  • Business credit cards: These cards usually come with rewards and perks tailored to small business owners and may also help you establish a business credit history.

Pros and Cons of Credit Cards

Pros Cons
Makes it easier to track your spending Credit card fees can add up
Rewards can add value to your everyday spending If you carry a balance, interest rates can be high
More convenient and secure than cash Approval requirements can be unclear
Can help you build and maintain good credit Can harm your credit if you don't use them responsibly
You can avoid interest by paying your balance in full each month Interest rates are variable and can fluctuate over time
Other benefits can help save you money and improve your lifestyle A low minimum payment can make you complacent

Should You Get a Credit Card?

The decision of whether or not to get a credit card depends on your current situation and your financial goals. In particular, a credit card may make sense if you want to build credit without paying interest, or if you want to take advantage of the rewards, benefits and other features credit cards have to offer.

However, it may not be a good idea to get one if you have issues with overspending, or if you're concerned that a credit card would create such issues.

If you're not ready for a credit card quite yet, consider asking a loved one to add you as an authorized user on their account. If they've used the card responsibly, its history can help build your credit profile. You'll also get a card that's tied to the account and can make purchases. That said, only the primary cardholder is responsible for making payments, so you'd need to make arrangements with them to cover your purchases.

Get Matched With a Credit Card Based on Your Credit Profile

It can be difficult to know whether or not you're eligible for a certain credit card. Whether you have your eye on a specific card or you simply want to shop around, Experian CreditMatch™ can help you in your search by matching you with cards based on your credit profile. The service is free and can make it easier to apply with confidence.