Credit Cards

How credit cards work

When you sign up for a credit card, you are signing a contract with the card company. You agree to the terms of the contract. The company puts a “credit limit” on your card of how much you can borrow.

You make purchases with the card and the card company pays for the items. Each month, they send you a bill listing all of your purchases with the card. The bill has a due date and a “minimum payment” amount. You can:

• pay the bill in full by the due date and not pay anything extra if you started the month with a zero balance.
  
  
• pay just part of the bill and owe the card company the balance and interest on the part you did not pay.

If you do not make at least the minimum payment by the due date, they will charge you a late fee and maybe increase your interest rate.

• if you go over your credit limit, there will also be fees
  
  
• if you keep charging without paying off the balance, the interest you owe will keep adding up

Our tips for using credit cards:

• have just one or a few credit cards
• pay your bill on time
• pay as much of the balance as you can to keep interest down

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