What is a Credit Card and how do they work? 

 

Convenient, safe and offering financial flexibility, Credit Cards can be a great way to spread the cost of your purchases. Discover more about Credit Cards, including how they work and how they differ from Debit Cards.

 

What is a Credit Card

 

A Credit Card offers a convenient way to make worldwide purchases without cash; extending a line of credit or loan that you pay back later. If you pay back less than the full balance at the end of your statement period, you’re charged interest on the amount owed.

 

Read more on credit limits.

 

How does a Credit Card work?

 

Put simply, Credit Cards grant Cardholders a short-term credit limit, which is set when your application is approved. As a Cardholder, you’re then free to spend up to this limit and, after an agreed period, you’ll receive your statement with the amount you need to repay. You’ll need to repay at least the minimum repayment amount to avoid late payment fees and prevent a negative mark on your credit score, but interest will be applied to any amount outstanding. If you pay the bill off in full each month, you won’t pay interest on anything you’ve borrowed.

 

With a Credit Card you may also pay additional charges, such as annual and cash advance fees. A Card with a higher fee tends to offer better rewards – from luxury travel benefits to exclusive offers and opportunities.

 

 

Differences between Credit Cards and Debit Cards

 

A Credit Card offers a line of credit that acts like a mini loan, meaning you’re not limited to the amount in your current account. If the full amount spent is not repaid when you receive your bill, you’ll be charged interest on the outstanding amount. 

 

A Debit Card, on the other hand, instantly deducts payments, only allowing you to draw on the funds within your current account. While this carries less risk of getting into debt, particularly if you don’t have an overdraft, it also limits your financial flexibility.

 

 

Note: Some Debit Card accounts may have an optional overdraft attached which allows Cardholders to borrow more money than they have in their account, taking them into a negative bank balance. This is a type of loan and could lead to interest charges.

 

With any Card, it’s important to understand the terms and potential charges before you apply.

Curious about the differences between Credit Cards and Charge Cards? Read more here.

 

Why use a Credit Card?

 

American Express Credit Cards offer a number of benefits for Cardholders:

 

  • Financial flexibility
  • Travel benefits
  • Rewards Points with every payment
  • Exclusive Membership Rewards
  • Option to use equated monthly instalments (EMI)
  • Credit Card protection

Read more on these Credit Card benefits here.