Credit cards help people purchase products online, buy airline tickets, rent automobiles, and hundreds of other things that most consumers take for granted. These rectangular pieces of plastic allow people to purchase goods and services without cash and they pay for the charges later. Consumers must apply for a credit card in order to gain these privileges. The cards are sponsored by specific banks and companies. Once a consumer qualifies for a credit card account, the bank or company provides him with a specific line of credit.

When a consumer purchases an item with a credit card, the cashier verifies that the amount charged will be approved by the credit card company. In short, the merchant needs to be certain that the amount charged does not go over the cardholder's credit limit. This process is done by sliding the card through an electronic card reader which connects to an approval network. When the card is accepted, the consumer is given a receipt to sign. Next the merchant and consumer keep a copy of the receipt for their records.

After this initial process, the merchant deposits the receipt with the bank, and the bank credits the merchant's account with the amount that has been charged. Once this is credited, the bank electronically sends the transaction to the credit card company. The credit card company credits the amount to the bank and charges the cardholder. A bill is sent to the cardholder so that he can pay back the amount that was charged to the credit card. If the cardholder pays the entire balance on the card, they do not incur finance charges or interest. Finance charges are added to the balance monthly, while interest is immediately added to anything that is purchased. This is why it is best if a cardholder tries to pay balances in full each month.

Credit card companies profit by charging interest on unpaid balances of the card. Some even charge cardholders annual fees which are usually around $50 to $75 each year. These credit card companies receive money from merchants as well, charging them a percentage of income for services provided by the card company.

Three features of a credit card help to prevent fraudulent practices—the credit card's account number, the magnetic stripe, and the signature panel.  All three work together to ensure that the cardholder, merchant, and credit card company are protected.

For example, all credit cards have a long string of numbers that form the account number. This makes it nearly impossible for someone to mistakenly use another person's account number since there are almost unlimited number possibilities. To illustrate, a MasterCard account number has 20 digits, a Visa has 13 digits, and an American Express has 15.

The signature panel on the back of the card is a record of the cardholder's signature. This makes it easier to detect a forged signature on the credit card receipt. If someone tries to erase the original handwriting, the fingerprint design will rub off. If the signature is erased, it leaves a white area—a red flag that someone has tampered with the card.

The magnetic stripe on the back of the credit card is covered with iron oxide particles. This strip is encoded with binary information and can determine whether the card is authentic.

Credit cards provide consumers with a way to pay for items without providing cash up front. If cardholders use their credit responsibly, credit cards can be useful tools. They can help them easily purchase products and services, whether the items are located inside the local discount store or halfway around the world.