Woman With Credit Card

How Credit Cards Work

Learn more about how credit cards work and what terms you need to know regarding them.

If you’re considering opening up a credit card, it’s critical to know the details. Understanding how credit cards work is at the heart of that process. This doesn’t just mean knowing the features and benefits of your particular card, or when to make payments, but the full workings of how credit cards are used. 

The Basics Of How Credit Cards Work 

Credit cards are a line of credit. A lender agrees to provide you with access to a set amount of money. Let’s say they offer a credit line of $1000 - That means you can make purchases on the card up to $1000. You can use the card anywhere it is accepted. Today, that’s very versatile!

When you make a purchase, your balance increases and your available credit line decreases. 

For example, if you charge $100 worth of groceries you now owe $100 on your credit card and your available credit limit drops to $900. Your lender will send you a bill for $100, but you don’t have to pay the entire balance off at once. Rather, you must pay the minimum payment established by your lender. The remaining balance is carried over to the next billing cycle.

Pretty convenient, right? Yes! However, there are fees and terms you need to know about when using credit cards. Let’s take a closer look at what happens after you’ve used a portion of your available credit.

Understanding Credit Card Terms & Fees 

A lender is required to provide you with a list of terms that outlines all of the details of the card. Read these carefully. By using the credit card, you are agreeing to the terms. 

Here are a few important terms to look out for:

Credit Limits

Your credit limit is the available line of credit and the limit to what you can charge on the card. 

Billing Cycle

This is the period of time you have to make purchases. When the period ends, you will receive your bill for what you’ve charged. 

Balance

Your balance is the amount you owe. You’ll see this listed on your credit card statement at the end of the billing cycle. This amount reflects what you borrowed as well as any accumulated interest.

Minimum Payments

Most lenders do not require that you pay the entire balance of your credit card at the end of the billing cycle. Rather, you have to pay a minimum amount which is a small percentage of your total balance. 

Late Fees

If you fail to make your minimum payment on time, most lenders tack on a late fee. Late fees can be expensive, and late payments may reduce your credit score. 

APR

Perhaps the most complex element of credit cards is the annual percentage rate or APR. This is the amount of interest charged to you for borrowing money. If you pay your balance in full during your billing cycle, there is no interest applicable to you. This is called the grace period.

The Cost Of Using Credit 

Interest is the fee you pay to use a credit card. As noted, if you pay off the balance in full during your grace period, you don’t pay interest. However, most people will carry a balance month-to-month. That is when the APR applies. Lenders will communicate what your interest rate is before offering you a card. 

Also, be sure you read through the terms to know all of the other potential fees including:

  • Annual fees
  • Late fees
  • Balance transfer fees
  • Cash advance fees
  • Transaction fees for overseas payments

The Benefits Of Using Credit 

Credit cards give you a bit of extra spending power when you want to make a big purchase. If you use credit, make payments on time consistently, and keep your balances low, you will be engaging in positive credit behavior. This can help you build a strong credit score. 

Later, when you want to buy a home or a vehicle, a good credit score means you’ll pay less interest.

Finding The Right Credit Card For You

Lenders, like big banks and local credit unions, offer various types of credit cards. If you’re thinking about applying for a credit card, review your options carefully and decide what offers give you the features and benefits you need. You’ll be surprised at the different perks available, like zero interest on balance transfers, cash back rewards, points, and more. 

At Listerhill Credit Union, we offer two credit card options, Visa Platinum Cash Back and Visa Platinum Merchandise. Both cards offer low-interest rates, great features, and perks. In addition, these credit cards do not have annual fees and they offer rewards. You can choose cash back or points to use towards gift cards or travel experiences.

Ready to explore your credit options? 

Find the Right Credit Card

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Frequently Asked Questions

  • How do I redeem my Merchandise Rewards?

    The easiest way to redeem your Merchandise Rewards is to log into Listerhill’s Online Banking and click the “Get Info” link to the right of your credit card information. This will take you to our credit card servicing site within the same window. Select “Rewards” on the upper right side within the screen (below FICO Score) and on the next screen, click on the CURewards logo. This will automatically sign you in to be able to redeem your Merchandise Rewards points!

  • What are the benefits of becoming a SEG partner organization?

    1. Completely free program and zero liability to your company.

    2. Easy to implement – requires no additional staffing or resource allocation.

    3. Builds employee loyalty and helps your organization stand out in a competitive employment market.

    4. Encourages financially stable employees through free on-site financial workshops.

    5. Initial on-site employee orientation; re-orientations and free financial seminars available. Once signed up, our SEG partner organizations are offered a free 30-40 minute on-site orientation to educate employees about the benefits of belonging to the Listerhill Credit Union financial cooperative. This informative and helpful session gives your employees a chance to ask questions and learn about the many benefits, products and services that membership provides them. Once on board, we also offer [INSERT PROGRAM NAME HERE] partner organizations free Lunch n’ Learn seminars for employees. Topics include creating a budget, paying for college, debt management and how to buy a home.

    6. Credit union support at benefit fairs and open enrollment.

    7. Same-day account opening – we can immediately assist your employees who would like to open an account during our visit.

    8. Free informational materials – We provide all materials at no charge, including brochures and financial wellness educational workbooks

    9. Free participation in employee benefits fairs, new employee orientation meetings and other organizational events.

    10. No hassle partnership – we do all the work!

  • How do your employees benefit from being a SEG?

    1. Lifetime credit union membership

    2. Competitive rates on a wide range of savings products like:

    • Share Savings
    • Money Market
    • Certificates
    • IRAs
    • My Goal Savings
    • Explorer Rewards

    3. A wide range of loan products like:

    • Auto loans
    • Personal loans
    • Recreational loans

    4. Competitive loan and savings rates.

    5. 24/7 account access with Smart ATMs, Online and Mobile Banking, or by telephone with Automated Access. The choice is yours.

    6. eStatements

    7. Overdraft protection

    8. Up to 3 overdraft refunds per year on us.

    9. First box of checks free when you open your new checking account.

    10. Free Visa debit card with rewards or a UNA Keystone Debit Card to show your #lionpride and give back to the University.

    11. Checking accounts with no minimum balance required.

    12. Interest-earning checking accounts

    13. Free Online Banking with features like:

    • Free Online Bill Pay
    • PopMoney
    • Notify Me Alerts
    • Personal Finance Manager

    14. 24/7 Access to Smart ATMS with features like:

    • Make a deposit
    • Get exact change
    • Make loan payments
    • Speak with a real, local representative

    15. Access to 5,000 CO-OP Shared Branches nationwide for easy access to your money wherever you go.

    16. Visa Platinum Cash Back card with 1% cash back on everything you buy.

    17. Visa Platinum Merchandise Rewards

    18. A full-service mortgage lending department and your mortgage stays with Listerhill for the life of the loan.

    19. A full-service financial planning department that gives you personalized, local service.

    20. Access to financial wellness education courses and information.

  • How does the Maintenance Fee contribute to Listerhill's sustainability?

    In the past, we charged a $10 Relationship Fee to help cover the cost of servicing members' accounts. We felt we could serve you better by removing this fee and establishing a lower fee based on your investment in the cooperative. Encouraging our members to save and borrow with us is key to Listerhill's sustainability, plus it creates value that it ultimately returned back to our member owners (like you!)

  • How can I avoid the new Maintenance Fee?

    You can avoid the new $5 Maintenance Fee entirely when you meet just one of the following requirements:

    • You or someone in your household has had a current loan or mortgage within the last 12 months.   

    • You or someone in your household has an open credit card    

    • You or someone in your household has an aggregate average daily balance of $1,000 in your accounts  

    • You or someone in your household has a relationship with our Listerhill Financial Services department   

    • You have paid at least $125 in NSF, Transfer, or Courtesy Pay fees for the month   

    • You are under the age of 25   

    • Your account is less than 90 days old   

    • You have paid a Return Mail Fee or an Inactive Account Fee for the month