A credit card gives you an opportunity to pay for purchases on credit. You get a grace period, which is usually between 21 and 25 days. If you pay by your balance during the grace period and by the due date, you don’t pay any interest.
Have you ever wondered what happens behind the scenes after you use your card for payment? It’s actually fascinating – and quite simple!
Here’s a brief recap of a credit card transaction’s journey when you buy, for example, a pair of shoes at your favorite store:
- You use your credit card to pay for your new shoes. Your credit card information is sent to the retailer’s bank, also called the acquiring bank.
- The acquiring bank requests payment authorization. The request is made to the credit card network for your credit card. These are the payment networks: Visa, Mastercard, Discover and American Express.
- Your purchase is authorized. The amount you paid for your shoes decreases your credit limit by that amount.
- You pay for your new shoes. The purchase amount shows up on your credit card statement. You’re given a due date and the amount of the minimum payment you must pay. If you pay the full balance, you don’t have to pay interest.
How Is Credit Card Interest Calculated?
When you pay your entire balance each month, you’re replenishing your available credit. If you only make the minimum payment, you risk getting into credit card debt. This is important to know because credit card balances are subject to compound…
