Credit Cards are part of a system of payments known as Credit.

Credit functions when a credit issuer (such as a financial institution or business) lends money to a consumer, who can then use it to spend with a merchant, with the understanding that the customer will replay the credit issuer at a later stage.

Credit cards differ from some other forms of credit in that the credit card holder (the consumer) will never possess any actual money provided by the credit card issuer. Instead the credit card issuer provides the credit card holder with credit they can use to make purchases.

Credit card issuers will usually process credit card applications to determine the level of risk that the potential cardholder poses. Typically this process involves examining the applicant's credit history, current employment status, employment history, and references to determine if they fall within a predetermined risk threshold.

When the credit card holder uses their credit card to purchase from a merchant, it is the credit card issuer that pays the merchant on the cardholder's behalf. The credit card holder is then expected to pay the card issuer, completing the payment cycle.

In fact, the cardholder often signs a receipt acknowledging their obligation to pay the issuer for the amount spent when making a purchase from a merchant (which is then kept by the merchant), and receives a copy of the receipt with the details of the purchase.

Relatively recently, merchants have begun accepting verbal authorizations of credit card purchases over the telephone, and with the advent of ecommerce, electronic authorizations as well. Within the credit card industry, this sort of transaction is referred to as "Cardholder Not Present" (or CNP).

The cardholder typically has the ability to repay their balance over an extended period of time. This almost always involves a cost to the cardholder in the form on interest.

The cardholder typically receives a monthly statement detailing items about their credit card account including an itemized list of the transactions they made in the previous month, their total balance, interest accrued on any previous owed balances, and the minimum payment amount required by the credit card issuer.

Interest is added to the balance owed by the cardholder unless the balance is paid in full by the payment due date. This allows the customer to extend their loan from their card issuer, and provides the card issuer with a source of revenue. Interest may vary from credit card to credit card, and even on different types of credit cards offered by the same credit card issuer. These rates can also be changed, largely at the discretion of the card issuer. Reasons for rate changes can include late payment of the credit card balance (or a late payment by the customer on another loan unrelated to the credit card), increased competition in the industry, or the demands of revenue.

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