TMCC Financial Literacy Guide

How Do Credit Cards Work? When you’re approved for a credit card, the bank authorizes a credit limit , which is the maximum amount you can borrow. Your credit limit will depend on such factors that include your income, your credit score, other debts and how much available credit you have on other cards. Payment networks such as Visa, Mastercard, Discover and American Express process credit card transactions. They make sure that the money for the purchase gets to the merchant, and that the and that the cardholder is billed. When you use a credit card and you receive the bill, you have the option of paying a minimum amount, paying the whole balance in full, or paying an amount in between . Paying just the minimum every month is ultimately the most expensive option, since it will cost you the most in interest. Paying in full is the best option. When you pay in full each month by the due date it allows you to pay zero interest on purchases. Your credit card issuer reports your payments to the credit reporting agencies, who prepare credit reports . The credit reporting bureaus are Experian, Transunion and Equifax. Your payment history counts for 35% of your credit score which is a three-digit number that indicates how risky it would be to lend you money. You must pay at least the minimum by the due date every month to avoid late fees and potential damage to your credit score. 20