How Are Credit Cards Used?

Once a credit card has been issued, the cardholder can make purchases within the prescribed credit limit. Within seconds, the provider of the goods or services can verify the validity of the card electronically. Each credit card has a unique personal identification number (PIN), which is like a password that authenticates the card. Upon making the purchase, the card issuer pays the merchant. At regular intervals, the cardholder receives credit card statements that outline all the purchases for which payments have been made using the credit card. The cardholder makes the payment by the due date to the issuing company. If the cardholder defaults on making a payment, interest is charged on the outstanding amount. Usually the interest rate is fairly high.