How do credit cards work?

Credit cards allow an authorized user to borrow money for expenditures up to a limit established by the card provider. The available limit is based on the cardholder's credit rating, other debt, income and other personal factors assessed by the lender.

To use the card, the cardholder submits it at a store or enters the card's number, expiration date and security code online. When a seller accepts credit cards as a form of payment, the payment is made at the time of purchase. Each month, the card provider sends a statement indicating the user's current balance, available funds and minimum payment. Carrying a balance from month-to-month leads to interest charges.