Credit Card | B2B Finance Glossary
Jul 11, 2023 by Zazil Martinez
What is a Credit Card? A credit card is a rectangle-shaped piece of plastic or metal issued by a bank, institution, store, or financial services company to an individual or a business. Credit cards allow users to pay for goods and services on credit: the funds holders borrow from the institutions that issued them the cards. Borrowing limits are preset based on individuals’ credit ratings or businesses’ past histories and relationships with their banks. If the funds borrowed on credit are not paid in full by the payment is due, the individual or business will accrue interest and any other agreed-upon charges. For example, if credit cardholders fail to pay their minimum payment by the time it is due, they will have to pay a late fee on top of the minimum payment. Credit cards usually charge a higher annual percentage rate (APR) than other loans. APR is the annual interest rate of a year, which means it’s calculated annually instead of monthly or weekly. Regarding credit cards, interest charges on unpaid balances are usually applied one month after a purchase is made unless previous unpaid balances roll over from prior months (which means there would be no grace period for any new charges). Certain laws require credit card issuers to provide a grace period of 21 days at the minimum before interest accrues. Additionally, different cards accrue interest in different ways, which is why it’s important for holders to know if their interest is accruing daily or monthly since this can make a big difference in how high one’s interest payments will be.
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