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How Do Credit Cards Work

How Do Credit Cards Work

Credit cards provide you with a quick, convenient method to pay. What happens when you swipe, insert or tap the card? How exactly do credit cards work?

Keep your eyes on this article to learn what a credit card is, how a credit card works, the advantages of utilizing credit cards, and many more.

What is a Credit Card?

A credit card is a kind of revolving credit account, and you can pay or spend that amount you frequently borrow once the account is open. There is no end date for a revolving credit card account.

Once you get approval for a credit card, the creditor makes a credit limit. You can use the maximum funds which the lender sets.

Whenever you buy through a credit card, the money charged to you via credit card is subtracted from your credit limit. The amount which is left after buying that is your available fund. And once you pay the used amount, all credit limits come back to your credit card account.

May you be thinking about the difference between credit cards and debit cards? The most significant difference is when you buy through a card from where the amount comes. In the case of a credit card, you are borrowing an amount, and in the case of a debit card, money is deducted from your bank account to which the debit card is linked.

Meet the Cast of Characters

To know how credit cards work, it helps to understand that numerous companies are keeping the system running:

  • Your bank or card issuer makes you the cardholder.
  • The Payment networks – Visa or MasterCard — are famous payment networks that connect your card worldwide to businesses that accept your credit card payments. Did you see 2 logos on the card; 1st for your card issuer and 2nd for the payment network.
  • The Merchant — any business where you buy something, such as a grocery store, shopping mall, online store, or other businesses.

How Credit Cards Work

After all, you understand about primary handles. But we will tell you how credit cards exactly work behind the scenes.

Say you are billing your purchases at the supermarket and paying through your credit card. Here are all the steps that how credit card payment functions.

  1. Your tab, insert or swipe your credit card. And also, Phone, if you have fetched your card to a digital wallet.
  2. The Acquiring bank receives your account details via card reader.
  3. The Acquiring financial institution utilizes payment mode to take authorization from the card issuer.
  4. Your card issuer authorizes the payment, and it transfers amounts via payment mode to the supermarket’s bank.

You may think that these are many steps, but the whole action mostly takes a few seconds.

So Why Use Credit Cards?

There are a lot of benefits of using a credit card if you use it seriously. They contain:

Help Building credit: If you use a credit card seriously, you can make good credit history and increase your cibil score. A good credit score will help you take car loans and personal loans at low-interest rates. Always pay your bill on time and keep the credit ratio low to avail benefits from credit cards.

Budgeting: Your credit card provides you with handy tools: the monthly statement. Your monthly statement works like a reminder, where you can see your spending details. With the help of this, you can track your Unnecessary expenses. So you can set your budget according to income. You can access your account online to maintain and make it easier.

Convenience: Credit cards provide you with a quick, convenient mode to make payments. Credit cards come with contactless technology, and you can pay via tapping your card on a contactless-enabled card reader machine to pay for purchases. You can add your card to a digital wallet to pay online with a fast and secure mode of payment.

Credit card rewards: The benefit of making payments through a credit card is that you will earn rewards.

Fraud protection: Credit card fraud can occur with any person. But these days, many credit cards come with security and protection features. These securities differ by the issuer and contain 0 fraud liability, security alerts, card lock, and virtual card numbers.

Types of Credit Cards

Types of Credit Cards

Though your credit card is perfect or wants to improve your credit score, you can search for the right credit card for you.

Below is a list of several credit cards to consider:

Cashback credit cards: Cashback during shopping depends upon the card; cashback credit cards can give benefits on daily spendings like groceries, entertainment, dining, and gas. For each qualifying buy, you can get discounts or cashback.

Travel rewards credit cards: If you use travel credit cards, you will get most gifts or rewards for traveling-related buying. But rewards are based on the types of travel credit cards, sometimes providing good rewards on regular shopping. Then you can generally redeem those offers for travel expenditures such as hotels and flights. Be aware of one thing that many travel cards have tie-ups with a particular airline or hotel. And you can only use rewards at those places. Cards not tied up with any co-brand might provide more flexibility in earning rewards.

Secured credit cards: A secure credit card is a suitable option if you are new to credit. A cash deposit backs a secured credit card that the card issuer keeps. Then you can use the card like any other. If you use the card responsibly, you will get back your deposit.

Student credit cards: Student credit cards are made for students only. They can be eligible easily for these cards rather than other credit cards and usually provide advantages compatible with students. If students use it responsibly, they can make a good credit history.

How to choose right credit card for me

How to choose the right credit card for me

Now you must have come to know how many types of credit cards are there? Now you must be thinking that? How do I choose the right card for me?

First, it is essential to understand that applying for credit cards can lead to tough questioning of your credit. And so many tough inquiries in a short time can hurt your credit score. So that is why you have to do proper research ahead of time applying for credit cards.

What type of credit card suits your credit score, APR, fees, where you would like to get rewards, and more offers will also be running in your mind. You should also read the terms and conditions of the credit card before applying.

Top Credit Cards in India

Credit CardAnnual FeeBest for
Axis Bank Ace Credit Card INR 499Cashback
Amazon Pay ICICI Credit CardZeroOnline Shopping
HDFC Millennia Credit CardINR 1000Cashback
HSBC Cashback Credit CardINR 750Cashback
SBI Card EliteINR 4999Travel, Movie and Shopping
HDFC Regalia Credit CardINR 2,500Travel and Shopping
Flipkart Axis Bank Credit CardINR 500Online Shopping
HDFC bank Diner Club PrivilegesINR 2,500Lifestyle and Travel

🡺 GST will be applicable separately 🢀

Top Bank Providing Credit Card in India

SBI Axis BankIndusind Bank
Kotak Mahindra BankHSBC BankBOB
City BankRBL BankYes Bank


1. How do beginners use credit cards?

Ans: Keep in mind all things which are given below:

  1. Set a Budget
  2. Track Your Purchases
  3. Set Up Automatic Payments
  4. Set a low limit on your credit as possible
  5. Pay Your Bill on time within a month
  6. Check Your Statement Regularly
  7. Redeem Rewards
  8. Use the Extra Perks
  9. Know Your Fees, and How to Avoid Them
  10. Use the credit card mobile app to know about your credit

2. How does paying with a credit card work?

Ans: When you buy things or services through a credit card, the buying fund is subtracted from your available amount. Once you repay your credit card account, you will have more available credit to utilize for future buying.

3. What is a credit card limit?

Ans: The credit limit is the maximum amount that you can use through a credit card in a month. Such as for shopping, buying services or making payments, etc.

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