Getting a credit card

Credit Card Definition and FAQs contents
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Credit Card Definition and FAQs

13 min read
Last Updated: January 30, 2026
Getting a credit card

Table of contents

Key Takeaways

  1. Credit cards allow you to borrow money against a line of credit.

  2. As you use your credit card, you typically build your credit history.

  3. Unlike debit cards, many credit cards offer rewards, like cash back or miles.

Even if you have one or more credit cards, you may not understand exactly how credit cards work or what sets them apart from debit cards. While you don’t have to be an expert on credit cards to use them responsibly, it helps to understand some basics.

What is a credit card?

A credit card is a plastic or metal card that gives you access to a line of credit. You may borrow against that line of credit as needed for purchases or cash withdrawals, up to a set credit limit.

A financial institution, like a bank, credit union, or credit card company, may issue credit cards. You may use a credit card to shop at many businesses, in person, or online. Some credit cards even offer rewards, like cash back or miles.

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How do credit cards work?

When you use a credit card, you’re borrowing money from the credit card issuer and accruing a balance. But unlike a mortgage or personal loan, a credit card is a type of revolving debt. That means you may borrow funds as needed, up to a credit limit that the lender usually determines based on your credit history and income.

At the end of each billing period, which is usually about a month, you receive a credit card bill that shows how much you owe and a credit card statement detailing your activity. You don’t need to pay the full bill at the end of the month, but you do need to pay at least the minimum payment listed on your bill. You must pay your bill by the due date to keep your account in good standing.

Each credit card payment restores part of your available credit.  But repaying less than the total amount you owe may cost you. Credit card issuers typically charge interest on any balance you carry, period. Your credit card’s annual percentage rate determines the rate at which your credit card debt accrues interest.

Some credit card companies may also charge an annual fee for keeping your account active. Discover® has no annual fee on any of our cards.

As you use your credit card, you typically build credit history through the following process:

  1. Most credit card issuers report each purchase, credit card payment, and other activity to the major credit bureaus.
  2. Each credit bureau documents your credit activity in your credit report. You may have a different credit report with each credit bureau.
  3. Credit scoring agencies use your credit reports to calculate your credit score, a three-digit number that gives lenders an idea of your likelihood to repay debts on time.

Good credit habits, like paying your bill on time each month and keeping your credit card debt low, may help you establish a positive credit score. Strong credit may make it easier to get good credit card and personal loan rates, rent apartments, and qualify for mortgages.

Most credit card issuers will report your credit history to credit bureaus, unlike debit cards or prepaid cards. When used responsibly, such as staying within your means and making on-time payments, credit cards can improve your credit score and financial standing.

What's the difference between credit cards and debit cards?

At first glance, credit cards and debit cards seem similar. They’re both alternatives to cash and may even be issued by the same financial institution. But only credit cards let you borrow money.

When you pay or take out a cash advance with a credit card, you’re accessing a line of credit. A debit card, on the other hand, is linked directly to your bank account. When you pay with your debit card, you’re simply spending your own money. Generally, you can’t use your debit card to spend more than you have in your bank account without penalties (though some lenders may allow you to link your savings account to your debit card in case you accidentally overdraft your checking account).

Because using your debit card doesn’t involve borrowing money, this activity doesn’t typically appear on your credit report or help build your credit history.

Different types of credit cards

Credit card companies, banks, and credit unions offer a wide range of credit cards, from exclusive luxury options to basic options for beginners. The ideal card for you depends on your credit history, needs, and priorities. Let’s break down some common card types.

Credit card rewards are valuable perks card issuers offer their cardmembers for every dollar they spend on their credit card, sometimes up to a certain limit or within a certain spending category.

 

Common rewards credit card types may include cash back credit cards, which offer a percentage of each eligible purchase back as cash, and travel credit cards, which may offer points or miles for every dollar you spend.

 

For example, with the Discover it® Miles Travel Credit Card,  earn 1.5x Miles on every purchase.1 Plus, get an unlimited Mile-for-Mile match of all the Miles you earn at the end of your first year, automatically. There is no limit to how much we’ll match.2

 

Many other types of credit cards, like certain student or secured card options, may also be rewards cards.  

When you open a secured credit card account, you have to make a refundable security deposit to the credit card issuer. Your deposit backs the credit limit. If you don’t repay your balance, the credit card issuer may keep your deposit to recoup its losses and close your account. But if you use your card responsibly for some time, you may be able to upgrade to an unsecured card and get your deposit back.

 

Your security deposit protects the credit card issuer from losses. So, secured cards often have relatively lenient requirements. As long as the credit card issuer reports your activity to the credit bureaus, a secured card might be a useful tool for improving your credit.

A student credit card is a traditional credit card specifically for people enrolled in college or other higher learning institutions.

 

Like any other personal credit card, a student card offers access to a line of credit. But student credit cards often have lower credit limits than regular credit cards, which can help students avoid getting in over their heads. Other features for students may include relevant rewards programs and online banking tools that help young cardmembers build strong credit habits, like spending trackers.

 

Many college students don’t have a robust credit history or full-time employment, so student cards often have minimal credit score and income requirements. A student credit card account may be a good way for a college student to start building their credit history. By using a student credit card with care, students may begin to establish themselves as creditworthy borrowers.

Co-branded cards are usually offered through a partnership between a credit card issuer and a specific company, like an airline or hotel chain. While you can typically use co-branded cards with most merchants, you may earn rewards that you can only redeem for purchases with the brand partner, like airfare at a certain airline.

 

A retailer or store credit card, on the other hand, may be issued by a specific store or brand. You may only be able to use your store credit card for purchases at the retailer that issued the card. A store credit card sometimes gives you access to exclusive discounts and perks.

Business credit cards are designed to help companies meet their needs. Credit card companies may offer high credit limits on business credit cards because business expenses, like inventory or equipment are often costly. Many business credit cards are also rewards credit cards.

 

Like a personal credit card, a business credit card may build credit history. But unlike a personal credit card, a business card builds credit history in the company’s name. You typically have to provide business documentation to open a business credit card account.

Did you know?

With the Discover it® Cash Back Credit Card, you can earn 5% cash back on everyday purchases at different places you shop each quarter, up to the quarterly maximum when you activate.

Learn More

Credit card FAQs

Whether you’re applying for a credit card for the first time, working on rebuilding your credit score, considering an upgrade, or wondering about the terms used in your credit card agreement, these credit card facts may help you better understand credit cards and debunk common misconceptions.

How do I apply for a credit card?

You may apply for a credit card online, over the phone, through the mail, or in person, depending on the card issuer. The application process may vary, but you typically have to provide basic information like your name, Social Security number, address, and income. Some applications may also include questions about your monthly housing expenses to give lenders a better understanding of your financial capacity. Students may also need to provide information about their schools to apply for a student credit card.

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Beginner credit cards, like student cards and secured cards, may be good options for people with limited credit history. Or, if you’re not ready for a credit card of your own, you may also ask a trusted friend or family member to add you to their credit card account as an authorized user.

An instant approval credit card is a card that offers immediate approval for qualified credit card applicants. Some instant approval cards let you use your credit card instantly through a virtual card number. You typically need a good credit score to qualify for instant approval.

If you get pre-approved for a credit card offer, that means that a credit card issuer has reviewed your credit history through a soft credit check and determined that you meet the basic criteria. The card issuer has “pre-approved” you as a quality candidate for its product. If you’re interested in the offer, you still need to submit an application, which includes a hard credit check. The card issuer may still decline your application, even if you were pre-approved.

You typically need to be at least 18 to get a credit card of your own. However, if you’re under 18, you may become an authorized user on someone else’s credit card account.

You don’t need to have a specific number of credit cards to build a strong credit history. Having multiple credit card accounts generally increases your available credit, which may decrease your credit utilization ratio (the amount of your credit in use at one time). The lower your credit utilization ratio, the better it is for your credit score in most cases.

 

But it’s best not to apply for many cards at once. Multiple credit inquiries in a short timeframe may have a negative effect on your credit. And if you struggle to manage multiple cards, you risk hurting your score by overspending or missing a credit card payment.

 

When you’re starting out with credit, it’s generally safest to begin with a single credit card and gradually learn responsible habits. A credit limit increase from your card issuer may boost your spending power without opening a new credit card account.

Your APR might go up for several reasons, even if you’re up-to-date on all payments. If your credit score decreases or a low-APR promotion ends, your interest charges may increase. Some credit card APRs may go up in response to economic trends, like increasing prime rates.

You may be able to lower your interest rate by improving your credit score in some circumstances. If you’re struggling to manage high-interest credit card debt, you may consider a balance transfer credit card offer with a low or 0% introductory APR. Just make sure balance transfer fees don’t offset your interest savings.

You can manage your account, securely and quickly view transactions, and make payments through the Discover online banking portal or mobile banking app. Text or email reminders may also keep you updated on your account.

You may not be able to avoid all credit card fees, but taking certain actions might minimize them.

  • •Choose a card without an annual fee. Discover has no annual feeon any of our cards.
  • Pay your credit card bill in full each month to avoid high interest charges.
  • Set payment alerts or automatic payments to avoid costly late fees and damage to your credit score.
  • Limit cash advances, which are cash withdrawals against your credit limit. Most credit cards have a cash advance fee and some card issuers charge a higher interest rate on cash advances than other transactions.

Cash back credit cards allow cardmembers to earn a percentage of the money they spend on eligible purchases back as a reward they may redeem for cash. Different cash back programs may offer different redemption options. You might redeem cash back as a gift card or payment method with select retailers, a credit toward your current credit card statement, or cash deposited directly into your bank account.

Whether you should use a credit or debit card to pay online depends on your situation and preferences. 

 

There are some advantages to paying with a credit card. If you use a rewards card, you may earn cash back or miles on your transaction.  

 

Credit cards may also offer more fraud protection than some debit cards. Your liability for unauthorized credit card charges is limited under federal law, as long as you dispute the charge within two days of identifying the unauthorized transaction. Some card issuers offer additional protections. With Discover, you get a $0 Fraud Liability Guarantee. You’re never responsible for unauthorized purchases on your Discover Card.4

 

But if you may be tempted to overspend when shopping online with a credit card, a debit card may be a better choice.

A statement credit is money that your card issuer applies to your credit card account. For example, if you accidentally overpay, most credit cards will apply a statement credit toward your future purchases. You may also redeem credit card rewards as a statement credit, bringing down your balance.

You should redeem your credit card rewards before they expire. If you’re not sure how much time you have to redeem your credit card rewards, check your rewards card terms. With Discover, your rewards don’t expire for the life of the account.5

The bottom line

Using a credit card may be a useful way to build your credit history, rack up rewards, or simply make everyday purchases more convenient. But before you tap, swipe, or insert, it’s important to understand the basics of credit cards. Getting answers to your credit card questions may equip you to make the right credit decisions for your financial needs.

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