How to use a credit card for purchases
You can use credit cards to make purchases online and in person, typically by tapping, inserting the card’s chip, swiping at the register or providing the card’s details at checkout. Many credit cards can be added to your digital wallet, which can be used to tap or make online purchases.
When you use a credit card to buy something, you technically borrow money that you agree to pay back. Each purchase lowers your available credit on that card.
Other ways to use your credit card
Credit cards aren’t strictly for purchases. Many cards offer the option to transfer a balance or get a cash advance. Just keep in mind that these transactions may come with fees and may carry different interest rates.
How credit card payments work
When you use your credit card for transactions, you’re responsible for making payments on time. You’ll typically get a detailed statement at the end of the billing cycle that includes:
- Statement balance: The full balance on your account as of the end of your billing cycle, including purchases and any applicable fees.
- Minimum payment: The smallest amount you must pay by the payment due date to keep your account in good standing.
- Available credit: How much of your credit limit that you can still borrow against
- Payment due date: You must pay at least the minimum by this date, otherwise the payment is late, and you may incur late fees. Keep in mind that if you only pay the minimum, your balance will typically start incurring interest.
How credit card interest works
Credit cards allow you to make purchases up to your credit limit, but borrowing money can come with interest. The rate you’ll pay for borrowing that money is the annual percentage rate (APR). Better creditworthiness may qualify you for a lower APR. Credit card APR is typically variable and tied to market rates, so it can change over time.
Credit card purchase APRs apply to the purchase balance on your card. You generally won’t pay interest if you pay your full balance in full each month by your payment due date.
You also typically have a “grace period” between the end of your billing cycle and your payment due date. The grace period is usually 21 to 25 days long. During that time, you aren’t charged interest if you didn’t carry a balance from the last billing cycle and pay off your current balance by the end of your current billing cycle.
Your credit card may also have separate APRs for things like cash advances and balance transfers, which may have separate rules. For example, cash advances typically start accruing interest right away. Low intro APR offers expire after a certain amount of time. At the end of that period, the regular APR starts to apply to any remaining balance.
Building credit with a credit card
Card issuers report your credit card activity to the credit bureaus. That can include your payments and revolving balance. This information contributes to your credit score over time. A high credit score may open the door to financial opportunities, like better loan terms.
Responsible credit card use, such as consistently paying your credit card bills on time and keeping your balance low, can help build your credit score.
In general, these factors help determine your score:
- Payment history: On-time payments show lenders that you’re a reliable borrower.
- Credit utilization: This is the percentage of total available credit you’re using. Most lenders like to see low credit utilization.
- Length of credit history: A longer credit history can give lenders a better idea of your financial behavior and risk over time.
- Credit mix: This refers to the different types of credit and loans you have in your name. A diverse credit mix can show lenders you’re capable of managing different types of debt.
- New credit: Applying for too many new credit accounts within a short period can signal risk to lenders.
Tips for using your credit card
Responsible credit card use can not only help you build credit, it can also help you avoid accumulating too much debt. Here are smart steps you can take:
- Set a spending limit: Credit cards can offer access to extra cash, but consider limiting your spending to what you can afford to repay each month.
- Pay off the balance each month: By paying your full balance each month, you can avoid paying interest on purchases.
- Keep your balances low: Carrying a balance can affect your credit utilization. If you carry a balance, try keeping it low.
- Consider setting up automatic payments: Autopay can help you keep up with payments. You can generally set it up to pay the minimum, the full statement balance or a specific amount.
- Use a rewards credit card: Some credit cards let you earn points, cash back or miles for qualifying purchases. These cards can have stronger creditworthiness requirements. They may also come with an annual fee, so decide whether the benefits are worth it for you.
- Talk to your creditors before missing any payments: If you think you may miss a credit card payment, talking to your issuer beforehand can help. They can walk you through your options.
Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
