What is Credit Card?

A credit card is a payment card that extends a revolving line of credit to the cardholder. Each month, the issuer sends a statement showing the outstanding balance, the minimum payment due, and the due date. The cardholder may pay the balance in full (incurring no interest on purchases if the previous balance was also paid in full, per the grace period) or carry a balance, on which interest accrues at the card’s annual percentage rate (APR).

The CFPB regulates credit card practices under the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, which amended the Truth in Lending Act. Key protections include: a 21-day minimum grace period before interest accrues on new purchases (when the prior balance was paid in full), a 45-day advance notice requirement for rate increases, restrictions on retroactive rate increases on existing balances, and a requirement that payments above the minimum be applied to the highest-rate balance first. Late fees are capped by CFPB regulation.

Carrying a balance from month to month transforms a credit card from a convenience tool into an expensive form of borrowing. With the average credit card APR above 20%, a $5,000 balance making only minimum payments will take over 20 years to pay off and accumulate more than $6,000 in interest. The CFPB advises paying the statement balance in full each month to avoid interest charges entirely.