How does a credit card work? Clearly explained
You can now pay almost anywhere with a credit card. How exactly it works is not clear. In this practical tip you will find everything you need to know about paying with a credit card.
How does a credit card work?
- If you apply for a credit card from your bank, a so-called credit limit is set. Your bank gives you this credit limit in advance every month - like a loan.
- You can then pay with the credit card as much as the available amount allows.
- Credit cards can also have a PIN that you can use to withdraw money from ATMs. When paying in-store, your signature is usually sufficient. You can now also make contactless payments with credit cards - for example in some Aldi branches or at Sanifair toilets in rest areas.
- A credit card is often useful, especially online. Many sites that provide paid downloads require a credit card as a method of payment. Payment is often authorized using the security number on the back of the card. What you should pay attention to when paying online by credit card is shown in another article.
- At the end of the month you will receive a credit card statement that you will need to pay - either in one payment or in installments. See the next paragraph for more information.
- There are also so-called debit cards. They look and work like credit cards. However, payments will be debited directly from your account within a few days. There is no monthly statement.
Features of a credit card
- At many banks, you can set the credit card statement to be automatically drawn from your account.
- If you settle the settlement on time in one amount, you pay no interest.
- If you do not settle the settlement immediately, your bank can charge interest. This also applies if you pay in installments. Tip: If you are afraid of missing a payment, you can also ask your bank for a prepaid credit card. It has to be loaded with money in advance and you are protected against default interest.
Pay by credit card - step by step
- You buy online or on site and pay with your credit card. Payment is authorized by PIN, signature or control number on the back.
- The respective amount is saved and noted on the credit card statement at the end of the month.
- At the same time, the amount will be deducted from your budget. For example, if you have 100 euros available and you bought it for 50 euros, you can spend another 50 euros with the card.
- The total amount will be debited from your account at the end of the month. The budget will be replenished.