A credit card is a payment card issued by a financial institution, typically a bank, that allows the cardholder to borrow funds to pay for goods and services. When you use a credit card, you’re essentially borrowing money from the card issuer with the promise to pay it back later. The cardholder can make purchases up to a pre-approved credit limit.
Key features of a credit card include:
- Credit Limit: The maximum amount of money the cardholder can borrow.
- Interest Rate (APR): If the cardholder doesn’t pay the full balance by the due date, interest is charged on the outstanding balance.
- Minimum Payment: The minimum amount the cardholder must pay each month to avoid penalties.
- Billing Cycle: The period during which transactions are recorded, typically a month, after which the cardholder receives a statement.
- Rewards and Benefits: Many credit cards offer rewards like cashback, points, or miles for spending.
It’s a convenient tool for managing cash flow, but if not managed well, it can lead to debt due to high-interest rates on unpaid balances.
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