How Credit Cards Work

Understand How Credit Cards Work And Shape Your Financial Future

The world of credit cards has nothing if not variety, but you have to know how credit cards work. You can order anything you want on your hamburger, buy carpet in every shade from white to purple, paint your car iridescent, choose from over 1,000 models of cell phone and so much more. And certainly when it comes to using plastic to pay for the things that life (or your children) demand you have choices.

Gift Cards and Prepaid Cards

Gift cards and prepaid cards offer one flexible option for buying things. One great way to use gift cards, other than gift giving, is to use them to limit your spending. For example, say you are taking a trip to DisneyWorld and want to be careful how much you spend: you might buy a certain amount of Disney gift cards, hand them out to your family and tell them that this is all they have to spend. There are many other ways that prepaid cards have value. However, you have to know how credit cards work because gift cards lack many protections and bonuses that true credit cards offer.

Debit and ATM Cards

Debit and ATM cards are a great way to access the money that you have in the bank, 24 hours a day, 7 days a week. They are convenient and easy to use. But if you know how credit cards work you know that these, too, lack many of the benefits and conveniences of true credit cards. That being said, if you want to know how to use a credit card at the ATM it’s easy. You simply request a PIN number from the bank that issues your card and then use the credit card as you would a debit card. But remember, most cards will charge you a cash advance fee. So if the ability to withdraw cash at an ATM is important to you be sure to compare credit cards online, looking at the cash advance fees.

How Credit Cards Work

Credit cards offer a variety of benefits which go beyond just offering a method of payment or accessing money that you already have in the bank. Credit cards allow you to plan ahead, to enjoy your future now, and more. In fact, here are 7 ways that credit cards provide benefits beyond prepaid cards, gift cards, debit and ATM cards:

  1. With credit cards you can buy a house. OK, well, not exactly, but by using credit cards you build your credit, giving you a better credit score and more options when it comes to financing your next home.
  2. Rent a Car. Most car rental companies require a credit card in order for you to rent a car. If you try to rent a car with a debit card they will often put your money on hold, require a deposit of $200 or more, or put restrictions on your rental. And there’s more. According to the Thrifty car rental website, many car rental companies will run a credit check on you if you pay with a debit card. That’s right, they check your credit and that goes as an inquiry on your credit report! Thrifty even admits that renting with a debit card takes a lot longer than renting with a credit card as all these checks are performed.
  3. Book a Hotel Room. Even if you want to pay in full most hotels require a credit card to cover incidental charges (like phone calls or damage to the room). If you do not have a credit card, but use a debit instead, you may be charged a large deposit.
  4. You can dispute Charges. One great feature of a credit card is the ability to dispute erroneous charges. That’s to say that if you see a charge on your card that you didn’t make it is much easier to get it removed from your credit card than it is to get the money refunded to your bank account.
  5. Credit cards can be used to verify your age. Some websites, such as YouTube, require you to use a credit card to verify that you are old enough to view adult content.
  6. Credit cards are easy to replace. If you know how credit cards work you know that credit cards trump cash in that they are super easy to replace if they are lost. Most prepaid cards cannot be replaced and debit cards can take weeks to replace because they are often issued by the bank branch. In fact, the Visa website says that if you are traveling and lose your card you can get emergency cash or a replacement card within 24 hours in many circumstances.

Thrifty Car Rental.

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Editorial Disclosure: The editorial content on is not provided by any bank, credit card issuer, airlines or hotel chain, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone, not those of the bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.