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How Do Credit Cards Work?

While credit cards and debit cards may look identical, they work differently. Debit cards allow you to make purchases by drawing on funds you’ve deposited in your checking account. Credit cards allow you to borrow money from the creditor (up to a specific limit) to make purchases and withdraw cash. When you use a credit card, the amount you spend is automatically added to your outstanding balance. 

How Can I Pay Off My Credit Card Fast?

Paying off credit card debt fast takes discipline and depends on just how much money you owe. Having the best banking tools to help you track spending can help reduce credit card debt.

What Is A Balance Transfer Credit Card?

If you have accumulated a debt on a high-interest rate credit card, doing a balance transfer can help you save money on interest and help you pay off your debt sooner. A balance transfer credit card lets you transfer your debt balance from your current credit card to a new card, usually from a different company or bank. After the transfer, your old account will have zero balance. Most balance transfer credit cards come with a zero percent or low-interest promotional interest rate, so be sure to find out how long the promotion will last and what the new rate will be when it ends.

Can You Buy a Car With a Credit Card?

Technically, yes, if your credit limit can cover the cost of the car. However, car dealerships may have a limit on the dollar amount that can be charged on a car purchase and may not allow the entire cost to be charged. If you do charge the entire purchase or even a large down-payment, be sure you can afford to pay your credit card bill the following month. Credit cards charge higher interest rates than car loans, for example 18% interest on credit cars vs. 4% on a car loan. If you cannot pay the bill in full, you will be losing a great deal of money buying a car with a credit card.

How Does Credit Card Interest Work?

All credit card companies charge daily interest on the unpaid debt balance that is carried from month-to-month. A credit card interest rate may also be looked at as an Annual Percentage Rate (APR). If you pay off your balance in full each month you will not be charged interest. Maintaining a balance will always result in interest being owed as part of the next monthly payment. This means that when you make a purchase and don’t pay your next bill in full, you are actually paying more for your purchases.

What Can a Credit Card be Used For?

Credit cards can be used to purchase just about anything, anywhere. How much you can charge on a credit card will depend on your card’s credit limit. Other than that restriction, there’s no limit on what you can buy. Most credit cards can also be used in other countries to make purchases, just as you would within the U.S. However, you’ll likely pay a small “international use fee” for doing so.

Does Closing A Credit Card Hurt Your Credit Score?

All lenders will look at an individual’s credit score to determine if that person is credit-worthy or a credit risk. Credit scores are generated by credit scoring companies, with FICO® Scores being the most widely used. Your FICO Score takes into consideration a Credit Utilization Ratio. This ratio looks at your total used credit in relation to your total available credit; the higher this ratio is, the more it can negatively affect your score. So, by closing an old or unused card, you are essentially wiping away some of your available credit and thereby increasing your credit utilization ratio. Here are some Tips for Improving Your Credit Score.

Can You Take Cash Out Of A Credit Card?

Yes, most credit cards can be used to get cash from an ATM or at point-of-purchase, such as at a supermarket checkout. However, using a credit card to get cash is considered a “cash advance.” All credit card companies charge a different interest rate on cash advances (vs. purchases). For example, CU SoCal charges only 2% on cash advances on our Platinum Rewards and Topaz Visa cards. Use your debit card to get money from an ATM or at checkout, so you don’t pay more in interest just to get some cash.

Can I Pay My Mortgage With A Credit Card?

Whether or not you can make a mortgage payment using your credit card will depend on your credit limit and whether your lender allows it. Credit card interest rates are almost always higher than mortgage interest rates, so it doesn’t pay to charge your mortgage payment. Even if you are allowed to do so, you will likely pay a high price to do so. If you are having trouble paying your mortgage, speak to your lender immediately. All lenders have policies in place to help those who are struggling financially.

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Credit Union of Southern California (CU SoCal) is a leading financial institution empowering those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County to reach their goals and build strong financial futures. CU SoCal provides access to convenient money management services and offers competitive rates and flexible terms on auto loans, mortgages, and VISA credit cards—turning wishing and waiting into achieving and doing.


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