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.

Simply put, credit card rewards are incentives that a lender offers its cardmembers for using its card. Popular rewards include cash back or miles. For example, many travel credit cards offer one mile for every dollar you spend. However, with the Discover it® Miles Travel Credit Card, you can 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

Cash back is a perk that some credit card issuers offer that allows cardmembers to earn back a percentage of the money spent on that credit card on eligible purchases. Different cash back programs offer different redemption options. You may be able to use it as a credit toward your current statement, to shop online, to purchase gift cards, or simply have it deposited back into a connected bank account.

A secured credit card is backed by a deposit that you make with the issuer. The deposit serves as collateral for the credit limit on the card. This means that if you default on your payments, the issuer can use your deposit to cover the outstanding balance. The Discover it® Secured Credit Card helps you build/rebuild credit history with responsible use.{build}

A student credit card may be a good way for college students to start building their credit history. By using a student credit card responsibly and making on-time payments, students can begin to establish themselves as creditworthy borrowers. Student credit cards often have lower credit limits than regular credit cards, which can help students avoid getting in over their heads.

A retailer credit card is issued by a specific store or retail brand. Retailer cards are typically good only at that store or the store’s website.

 

Co-branded cards, such as those issued by hotels or airlines, might have different types of merchants that also accept them for payments. However, you might receive extra benefits on purchases of that brand’s product.

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.

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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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There are plenty of options on the market for people with limited credit history, like student cards and secured cards. Another option is that you can ask a friend or relative to add you as an authorized user on their card.

Instant approval means you’ll receive a quick answer to your application for a new credit card. Typically, only people with good to excellent credit scores get instant approval.

If you get a pre-approved credit card offer, that means that a credit card issuer checked with a credit bureau and saw that you meet its initial credit criteria. The card issuer pre-approved you as a quality candidate for its product. You’ll still need to apply to receive a new credit card, at which point you may still be accepted or denied based on your credit report.

Eighteen is typically the minimum age where you can apply for your own credit card in the United States. However, if you’re under 18, someone can add you as an authorized user on their account.

There is no right number of credit accounts to build a solid credit history. There are many factors that make up a credit score (and every credit bureau has different ways of calculating your score). In general, major factors of any credit score will include late or missed payments, frequency of credit inquiries, and how much of your credit you’re using (your credit utilization ratio). 

 

When you’re starting out with credit, it can be safer to begin with just one card to ensure you can make payments consistently before adding more. If you need more spending power, you can request a credit line increase, that way you can still keep your credit utilization ratio low while boosting the amount of available credit.

There are a few reasons your annual percentage rate (APR) can go up even if you’re up to date on all payments. These include a decrease in your credit score, the end of a card-related promotion, or a change in the prime rate if you have a variable-rate card.

You can manage your account at Discover.com, where you can also securely and quickly view transactions and make bill payments. You can also stay up to date on your account through text or email reminders.

While every credit card has different terms, most credit card fees can be avoided if you:

  • Choose a card without an annual fee. Discover cards all have no annual fee.
  • Pay your bill in full and on time every month to avoid interest charges. Late fees can impact your pocketbook, and late or missed payments can also have a negative effect on your credit score.
  • Limit cash advances. Most credit cards have a cash advance fee and charge higher interest on cash advances.

Advantages to online shopping with a credit card over a debit card usually include the ability to earn rewards on purchases. But the most significant difference has to do with fraud. If someone makes fraudulent charges with your debit card, the money comes directly out of your bank account. Even if you can get a refund, it may take time to get that money back. The FDIC recommends that you report fraud to your bank immediately.

 

With a credit card, you can dispute charges and your credit card company will investigate and issue applicable credits for fraud charges. If you haven’t paid your bill yet, the funds might not affect your account balance during the investigation. With Discover, you get a $0 Fraud Liability Guarantee. You’re never held responsible for unauthorized purchases on your Discover Card.5

Depending on your current standing and credit history, your credit card company may be able to approve a lower rate. Also consider a balance transfer to a card with a low or 0% introductory APR offer, but pay attention to balance transfer fees if you choose to do this.

A statement credit is a positive amount on your credit card bill. For example, if you accidentally overpay, most credit cards will apply a statement credit toward your future purchases. As mentioned, some rewards cards also allow you to redeem cash back for a statement credit, lowering your balance by using your cash rewards.

With Discover, your cash back does not expire for the life of the account.{redeem} Well credit your account or send you a check with your rewards balance if you close your account or if you don’t use the account within 18 months.

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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