A credit card is a plastic card that allows the holder to borrow funds from a financial institution up to a pre-set credit limit. The borrower can use the credit card to make purchases or obtain cash advances, and is required to pay back the borrowed amount along with interest and other charges within a specified period of time.
Credit cards are issued by banks, credit unions, and other financial institutions, and are used by consumers for various purposes such as making online purchases, paying bills, and booking travel accommodations. Credit cards offer convenience, flexibility, and rewards programs, but they also carry risks such as high interest rates, fees, and the potential for overspending and debt.
Credit cardholders are typically required to make minimum monthly payments, but they can also choose to pay off the full balance to avoid accruing interest charges. Interest rates on credit cards are typically higher than those on other types of loans, making it important for borrowers to manage their credit card use and pay off their balances as soon as possible.
Credit card companies also offer rewards programs, such as cash back, points, or miles, to incentivize card usage. These rewards can be used for travel, shopping, or other purchases, but may also come with annual fees or other costs.
To obtain a credit card, an individual must apply and be approved by the financial institution issuing the card. The approval process typically involves a credit check and assessment of the applicant’s creditworthiness based on factors such as income, credit history, and debt-to-income ratio.