Credit card basics: all the information you need to know


Credit cards are valuable tools for building credit, but finding and getting approved for the right card can be a stressful endeavor. If you’re new to the world of credit, you may need help figuring out where to start or understanding how they work. A little research can go a long way before applying for a credit card, so here’s what you need to know.

What is a credit card?

Credit cards are financial instruments with revolving credit lines that are mainly used to make purchases: you can buy something now and pay later. Your credit card company sets your credit limit after approval and from there you can borrow against your credit limit to make purchases. As long as you pay your balance in full and on time every month, you don’t have to worry about interest charges. While it can be easy to get into debt if you don’t exercise discipline, many credit cards offer cardholder benefits such as cash back rewards, balance transfers, travel benefits, and purchase protection.

credit card basics

The information embedded in your credit card serves an essential purpose: to identify the account holder. It’s best to understand what this information means and where to find it, so here are some important things to look out for on your credit card:

credit card number

A credit card number is a 15 or 16 digit number that appears on the front (or sometimes the back) of your credit card. This number is used to identify the card and account holder and contains several security features.

cardholder name

Next to the credit card number you will find the name of the cardholder on the credit card. The name must match the government-issued ID associated with the cardholder.

end date

Every credit card has an expiration date to provide an extra layer of security. This date is usually found between the card number and the cardholder’s name on the front of the card and may be required to complete online transactions.


Card Verification Value, or CVV, is a three or four digit number printed on the front or back of your credit card. CVV protects cardholders during card-not-present transactions as this unique number verifies that the person making the transaction is the cardholder.

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Account Information

Your credit card account has everything you need to make payments, stay up to date on recent transactions, and redeem credits and rewards. Familiarize yourself with this information from your credit card account.

balance statement

Your credit card statement balance includes all transactions and payments made during your most recent billing cycle. Paying your statement balance on time and in full is the best way to avoid paying interest.

current balance

Your current balance is the total amount of purchases, credits, interest and fees that you have accrued since your last statement. It’s a real-time view of how much you owe on your credit card and it’s updated every time you use your credit card.

credit limit

A credit limit is the maximum amount you can borrow on a credit card. Your credit limit is based on your creditworthiness and the terms of your credit card agreement. Before opening a new credit card, check the credit limit and make sure it meets your needs. It’s best not to use more than 30% of your credit limit at a time to maintain a healthy credit score. This is known as your credit utilization ratio and is the amount of credit you use compared to the amount of credit you have available.

billing cycle

A billing cycle is the time between the last statement close date and the next one. Each credit card has a billing cycle that lasts between 28 and 30 days. But according to CARD law, your due date must be at least 21 days after the end of your billing cycle.


When you withdraw money from your credit card account, it is known as cash advance. Credit card companies often charge higher interest rates for cash advances than for purchases, and interest begins to accrue immediately. There are usually additional costs involved as well.

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grace period

Credit card companies provide a grace period between the end of the billing cycle and when your bill becomes due. You will then not incur any interest charges. However, if you fail to pay your statement balance on time and in full, interest will accrue on that balance immediately after your due date.

minimum wage

Minimum payment is the minimum amount you can pay to your credit card balance to put your account in good standing. If you can’t pay your balance in full, it’s important to make at least your minimum payments to avoid late payment penalties and fines.

award rate

With some of the best rewards credit cards, you can earn cash, points, or miles on almost every transaction. It’s important to choose a credit card that offers rewards that fit your spending habits to make the most of your budget.

balance transfer

A balance transfer allows you to transfer one or more high-interest balances to a new card with a lower APR. Some of the best balance transfer credit cards offer introductory 0% APR periods on your balance – usually for 12 to 21 months. Balance transfers can be an excellent tool for consolidating and paying off high-interest debt.

credit card charges

Credit cards can cost you dearly if you’re not careful, but most costs can be avoided by using them responsibly. Note the following:


The annual percentage rate, or APR, is the interest rate you’ll be charged if you don’t pay your credit card balance in full each billing cycle. Depending on the prime rate, APRs can be fixed or variable. If you maintain the balance from month to month, you will earn interest based on your APR. While you can avoid fees and interest by paying your card in full each month, credit card interest is often significantly higher than other types of debt and can add up quickly.

foreign transaction costs

Depending on the card, you may be charged a foreign transaction fee – an additional fee charged for making purchases outside the US. Foreign transaction fees are usually 3% of the transaction and add up quickly, but there are credit cards with no foreign transaction fees.

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Annual contribution

A card with an annual fee means that you have to pay an amount each year that you have the credit card. However, some cards with no annual fee include higher reward rates or better benefits. Understand that your first credit card can help or hurt your credit score, and committing to a card with an annual fee but not being able to continue will affect your credit score. The annual fee usually ranges from $95 to sometimes more than $600, but some credit cards do not have an annual fee.

compensation for late payment

If you miss a payment on your credit card, you will be charged a late payment fee. Some publishers waive late payment fees the first time you miss a payment, but this isn’t always the case. A late payment can cost you between $20 and $40.

balance transfer fee

Balance transfer credit cards typically charge a fee of between 3% and 5% of the transfer balance. However, there are a handful of credit cards with no balance transfer fees to encourage cardholders to transfer balances.

It boils down

Credit cards can help you build credit and earn rewards, but they can create a whirlwind of financial trouble if misused. To avoid getting into debt or financial trouble, make sure you understand the terms of your credit card so you don’t have any surprises later on.

The editorial content on this page is based solely on objective, independent reviews by our writers and is not influenced by advertising or partnerships. It has not been supplied or ordered by a third party. However, we may receive compensation when you click on links to products or services offered by our partners.




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