June 14, 2024

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How credit card payments are processed

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credit card payments


In today’s world, everyone needs to have a credit card. If you have your credit card and make regular and monthly payments, you can build a good credit history.

From where you apply for a credit card, the credit card issuer informs you about the minimum payment you must make every month, along with the due date for payment.

How do credit card payments work? If you want to know the answer to this question and more facts related to credit card bill payments, you should read the article.

What is a credit card balance? 

When you make any purchases with your credit card, the amount charged is added to the amount you owe in total; this is referred to as credit card balance.

Your credit card balance is not only the sum of your purchases but also includes the interest that is owed on your balance, fees, and penalties that the card issuer charges you. At the end of every monthly cycle, the card issuer informs you how much you owe, the minimum payment needs from you, and the time when payment is due.

How interest rates on credit cards are calculated

The interest rate charged by the card issuer is calculated the same as the APR, the annual percentage rate.

  • As we know,the APR is an annualized percentage split by 12 and applied to your outstanding monthly balance.
  • For instance, a credit card with an APR of 20% charges you around 1.67% interest on the outstanding balance every month.
  • Some credit cards have more than a single APR, like one for cash advances and the other for purchases.
  • This falls under the category of credit card terms that you should know while opening your account.

Terms to understand the credit card fees

Credit cards have come with huge fine prints related to penalties, fees, and other associated charges. Here are some important terms that you should know to understand credit card bill payments.

  • Late fees

 If you miss the due date on a monthly payment of your credit card, you are hit with a late fee. Also, your late credit card payments are reported to credit bureaus and show in your credit history, damaging your credit score.

  • Over limit fees

If you pass the credit limit on your credit card, the credit card issuer charges you over-limit fees. The fee depends on how much you cross over your credit card limit.

  • Annual fees

An annual fee is a yearly fee that you simply must pay to have your credit card. Most credit cards are available without annual fees. These annual fees have also come with a rewards program that provides you with high rewards on your purchases.

  • Cash advance fees

Some credit cards permit you to take cash advances. This fee is calculated as a cash percentage that you get and can be costly.


A credit card is the right way to build your strong credit score, but it is not important to overextend yourself or go into the deep of your card debt.

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