Accounting terms

Dictionary of all accounting terms

What is a Credit Card?

A credit card allows the cardholder to pay for goods and services based on a promise to repay the card issuer for the amount plus any agreed charges or interest.

With credit cards, card issuers (who are usually banks) provides the cardholder with a line of credit based on different agreements. The cardholder then has the ability to pay for goods and services, which the card issuer initially pays for, with the promise to pay back the card issuer the original amount and any other agreed charges.

These charges may include interest for late payments, penalties, and often standard annual service charges.

Credit cards are small, wallet-sized plastic cards with a magnetic stripe holding a machine-readable code. The credit card issuer will normally waive interest charges if the cardholder pays the balance in full each month.

If, however, any part of the balance remains unpaid within the agreed-upon grace period (the standard 30 days), an interest will normally be charged on the entire amount.

Credit cards are important in many countries for helping users establish good credit. However, they may also lead to financial ruin, which is why it is important for cardholders to pay their balances on time every time.

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