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How Do Credit Cards Work?

Advertiser Disclosure by Gerri Detweiler

How Do Credit Cards Work

Credit cards are a modern convenience. And, increasingly, they’re a necessity. The growing list of businesses that accept only credit cards – and not cash — includes hotels, airlines, resorts, rental car companies and even some restaurants and merchants.

Credit Is Crucial

Convenience isn’t the only reason credit cards are crucial. They’re the quickest and most-efficient way to build credit history. Using a card carefully and paying your bill on time without fail builds your credit score, which is increasingly necessary to rent an apartment, buy a home or purchase a car. Strong credit earns you lower rates on home loans, car loans and auto insurance. Employers check job applicants’ credit history, as do utilities and mobile phone companies.

Credit cards are usually affiliated with one of four major payment issuers: MasterCard, Visa, Discover and American Express. MasterCard and Visa don’t issue cards, however; instead individual lenders do. That means that even if you can’t get one of these cards through one card issuer, another one may approve you. In other words, it pays to shop around for the right credit card.

Cards Come in All Types

There are credit cards for borrowers with good credit, bad credit, or no credit at all. Certain cards are best for travel while others are better for gas rewards or business perks.

Secured cards have low credit limits and require a security deposit, usually $200 to $500.

Reward cards let you earn points you can use to claim benefits. Purchases you make with the card help you build rewards which vary, depending on the card, from donations to causes of your choice, to cash back or points toward merchandise or discounts with airlines, hotels and resorts.

Your good credit earns you a much better selection, lower rates and low or no annual fees. With poor credit or no credit, your choices will include cards with higher interest rates, more fees and penalties.

How to Shop

How can you sort through all the options and decide which cards to apply for? That’s not difficult. You can avoid hassle and rejection by applying only for cards you’re likely to qualify for based on your credit profile. Here’s how:

  • Learn your credit score. Use’s free Credit Report Card to get two free credit scores.
  • View offers.’s credit card search tool lets you filter offers by credit score. Filter your search at the top of the page. When card shopping, carefully compare the fine print for each card, including APR’s, fees, maintenance costs, penalties, grace periods and other rules.

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  • WSP

    Wow, you need to use credit cards to keep your credit score up! And you need to keep your credit score up so that you can borrow more money! So credit cards are just a teaser.

  • Mr. Stingy

    Key: Don’t spend money that you don’t have, and don’t borrow money that you cannot pay back.

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  • Meet Our Expert

    gerri_detweiler GravatarGerri Detweiler is's Director of Consumer Education. She focuses on helping people understand their credit and debt, and writes about those issues, as well as financial legislation, budgeting, debt recovery and savings strategies. She is also the co-author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights, and Reduce Stress: Real-Life Solutions for Solving Your Credit Crisis as well as host of
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Certain credit cards and other financial products mentioned in this and other articles on News & Advice may also be offered through product pages, and will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.