7 When you use a credit card, you’re getting a loan A credit card allows you to borrow money from a bank or business to make purchases. You are then given a period of time (usually a month) to repay the loan. If you do not pay the balance within the designated time period, you’re charged interest on the unpaid amount. Credit card companies want you as a customer You’ve seen the commercials. Use our card and get rewards...or a low annual fee...or double bonus points...or a low introductory rate. Credit card com- panies make a lot of money off their customers through annual fees, late fees, and by charging interest on unpaid balances. This is why they will all try to convince you that their card is the one you need. Before you apply for a credit card, check out their fees, interest rates, rewards programs, etc. Read the fine print. Pay the balance in full Many credit card users pay off their balance in full each month—and pay no interest. They pay just the amount they charged on their card that month. This is smart! The majority of credit card holders, however, make minimum or partial payments each month. Because they carry balances on their cards, they’re charged interest, and those interest charges compound month after month untilthebalanceispaidinfull.Credit card companies love these people—they are the industry’s bread and butter! Pay credit card balances on time Paying a credit card balance in full isn't enough—it also needs to be paid on time. People who pay their credit card bill even a single day after the due date could be charged a late fee of $25 to $35. This fee will be reflected in their next billing statement. Using a credit card responsibly helps you build a good credit record, which is very important. (More on this to come.) Credit Cards Every consumer should understand how credit cards work—and also how the misuse of credit cards can get you into serious financial trouble.