How Credit Cards Work
Credit cards can help strengthen credit, while earning rewards for everyday purchases.
They also give you the flexibility to pay back purchases over time. Credit cards are a kind of loan, though, so it’s important you understand how they work.
Think of a credit card as a loan. Your card issuer has approved you for a loan amount (your credit limit) that you can spend. Each month, you’re committed to paying some of that loan back (your minimum monthly payment). Whenever you don’t pay it off in full, you’ll be charged interest on the remaining balance, and the interest will be added to what you owe.
So when choosing a card, it’s important to think about how you plan to use it. If you’re confident you’ll pay off the balance in full each month, interest rate may be less of a factor when selecting a card. If you think you’ll make some big purchases that will take a while to pay off, you definitely want to go with a lower interest rate to keep your balance as low as possible.
You can also use your credit card to build a positive credit history. Here’s how:
- Use your card regularly
- Make your payments on time
- Keep your balance below your limit
- Continue using your credit card over an extended period of time
- Regularly read your credit report to make sure it’s error-free
Many credit cards reward you with a set amount of cash back or points for every dollar you spend. Points can be redeemed for cash, travel, merchandise or gift cards. If you use your card at our online Member Deals, you’ll even have the chance to multiply the rewards you earn while shopping at your favorite retailers.1
Rewards are subject to change and vary by merchant. Reward types are based on the purchasing credit card. cashRewards receives cash back, Platinum receives a statement credit, and all others receive points. Program excludes Navy Federal business and Home Equity Line Visa® Platinum credit cards and Navy Federal Debit Cards.↵