How credit cards really work

The idea in plain words

A credit card is a short-term loan every time you use it. If you pay the full statement balance by the due date, you usually pay no interest on purchases. If you carry a balance, the card charges interest at its APR, the annual percentage rate, and the cost can grow fast because new interest is charged on old interest. The minimum payment keeps the account in good standing but is designed to be small, so paying only the minimum can keep you in debt for years. Your payment history and how much of your limit you use are two of the biggest influences on your credit score.

Your plan

1. Learn the vocabularyAPR, statement balance, minimum payment and credit limit.
2. See the costUse a payoff calculator to compare the minimum with a larger payment.
3. Practice in a gameMake card decisions where mistakes cost nothing.

Try it with our free tool: Credit card payoff calculator.

Handpicked resources

• CFPB Credit Card Questions

  Answers about fees, APRs, limits, promotions and consumer rights.

  FreeGuide & reference

• CFPB Credit Reports & Scores

  Understand reports, scores, inaccuracies and identity-theft disputes.

  FreeGuide & reference

• Credit Clash

  Learn the credit score consequences of financial decisions.

  Hidden gemFreeGame & simulation

  Individual game is selected on publisher Arcade page; URL points to collection.

• NCUA Credit Building Guide

  Understand good credit and important consumer protections.

  FreeGuide & reference

• FTC IdentityTheft.gov

  Official response steps for suspected identity theft and fraud alerts.

  FreeGame & simulation

Knowledge check

Educational practice, not financial, tax or legal advice.