Whether you are a first time credit card holder or have been a preferred card holder for years, this video will demonstrate how your card works, whether it is your terms and conditions or the monthly payment process, so that you understand your obligations.
Credit cards are a common and popular way to buy items, get cash and demonstrate credit history. A traditional credit card functions very similar to a revolving line of credit. Knowing how credit cards work will make you a better informed consumer and better at making the right decisions when it comes to your credit card purchases.
The way credit cards work is fairly straightforward: The credit card issuer gives you a card. You use the card to pay for specific or miscellaneous items and services up to a certain total amount, which is called your “credit limit”.
If the credit card holder carries a balance, credit cards function very similar to that of a personal loan in that the credit card company allows the card holder to pay off what is owed little by little each month, which is technical known as a minimum payment. In exchange, the card holder is obligated to pay interest on the balance owed at the end of each period.
Some of the basic functions of a credit card include:
- High rates of interest
- Annual fees
- Late fees, over-the-limit fees, and other miscellaneous charges
- Protection fees
On May 22, 2009, President Obama signed the Credit Card Accountability and Disclosure Act of 2009 (the Credit CARD Act) into law. This new law sets in place additional protections to consumers by forcing credit card issuers to include better disclosures of account terms, restrictions on specific billing practices and fees and limits on interest rate increases.