How Do Credit Cards Work?

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Credit cards work by electronically pulling money from a bank to pay for transactions with a vendor. Understand that money spent on a credit card is not your money and must be paid back. Avoid abusing credit cards with tips from a registered financial consultant in this free video on credit cards.

Part of the Video Series: Money Management
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Video Transcript

This is financial adviser, Patrick Munro talking about how do credit cards work? Credit cards are an instrument that an individual carries in their pocket. It is made out of plastic and it ties to a bank that has issued the credit card to the creditor or consumer for a specific line of credit that can be used for the purchase of goods or services. When the consumer identifies those goods or services that they want to use the credit card for they present that to the merchant. The merchant then swipes as we say the card through a credit card machine and the charge for the goods or services is posted or removed from the bank and deposited into the vendor's account automatically. Now the consumer has the goods or services that they wanted, they now have a debt against the credit card company for the value of those goods or services. The responsibility is then put upon the consumer to pay off that debt and many people do at the end of the month and therefore they have got a new line of credit available for future goods or services. This is how credit cards work. Financial adviser, Patrick Munro.

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