Using a credit card isn’t that different from using a debit card for making purchases. For instance, you can use a credit card to pay at checkout in a store by dipping or swiping your card at the terminal.
You can also use your card to buy things online. To do that, you’ll need to enter your card details at checkout, including the card number, expiration date, and the three- or four-digit verification number.
The difference between a credit card vs. a debit card is where the money comes from to cover your purchases.
With a debit card, you’re spending money from your bank account. When you use a credit card, you buy goods and services with the credit card company’s money. As part of your cardmember agreement, you’re obligated to pay that money back later.
The credit card company can charge interest on purchases, and you might also pay an annual fee to have the card. The credit card company determines your credit limit, or how much you can spend. As you make purchases, your available credit shrinks. Your credit limit will increase when you make a payment toward your balance.
What do I buy with my credit card?
Credit cards are a convenient way to pay for a variety of purchases. For example, some of the things you might charge to a credit card include:
- Groceries
- Gas
- Online shopping
- Hotels and rental cars
- Flights
- Medical expenses
- Vet care for pets
- Emergency expenses
Your card network determines where you can use a credit card. A card network makes it possible to complete credit card transactions by transferring information from one place to another. In the U.S., there are four major credit card networks: American Express, Discover, Mastercard, and Visa.
So if you have a credit card with the Visa logo, you can use it anywhere Visa is accepted. A credit card can come in handy if you’re somewhere that doesn’t accept cash or you want to buy something and pay for it later.
How does cash back work?
Credit cards aren’t all the same. Some sweeten the deal by rewarding you with points, travel miles, or cash back for the things you charge.
Cash back credit cards can pay you back a certain percentage of every purchase in cash or in points you can redeem for cash. So, for example, you might earn 5% cash back at grocery stores, 2% back at gas stations, and 1% back on all other purchases.
Getting cash back from a credit card can be like getting a discount on those purchases if you’re redeeming your rewards as a statement credit. That means you tell the credit card company to use your rewards to pay down some of your balance instead of cutting you a check or putting it in your bank account.
Check the annual fee if you’re considering a cash back rewards card. Earning $100 in cash back may not be that great if you’re handing $95 of that back to the credit card company for the annual fee. And it’s also helpful to consider the interest rate you might pay if you carry a monthly balance.
