How does a credit card work? Important briefly explained

With a credit card, you can pay for goods and services in a non-bureaucratic manner without the need for cash. It can be used worldwide and can also be used abroad to withdraw cash from ATMs. See for the scoop

In many countries, credit cards and digital payment methods have pushed cash payment into the background. Those who spend a lot of time abroad quickly realize that they can hardly do without a credit card.

Credit cards are less popular in Germany. Just under 40% of Germans use a credit card. But the trend is increasing. If you are applying for a credit card for the first time, you will surely have many questions.

Who spends credit cards at all? What are the application requirements? What about the services and the costs? Are there different variants? How does the payment process work and who is involved?

Who issues credit cards?


Card issuers are always credit card companies. In Germany, we know Visa, Mastercard, American Express or, less used, Diners.

The publishers create an organizational framework for the payment process. They also negotiate conditions and fees for the credit card business with banks.

When it comes to issuing credit cards, customers generally have nothing to do with the credit card companies. The credit cards are issued by the partner banks of the companies.

An exception is the credit card company American Express, which handles the credit card business directly with the customer.

What types of credit cards are there?


The essence of a credit card is actually that the holders are given a loan for a certain period of time.

However, card issuers also sell other products that work on a credit basis.

Charge Card

The cardholder is granted a short-term credit line for one month, which he can freely use. The balance is settled after the end of the month.

Users receive a credit card statement for the outstanding amount. After a certain period, usually at the beginning of the new billing month, this amount is debited from the checking account at the issuing bank by direct debit.

If payment is made on time, there is no interest. Interest claims only arise if the outstanding balance is not settled as agreed.

Revolving card

Revolving credit cards work in a similar way to credit lines. Card users receive a credit line. In this respect, there is no difference to the charge credit card.

As with the ChargeCard, cardholders receive bills on a monthly basis.

But the balance shown in the invoice does not have to be fully settled in the following month. All that has to be paid is an agreed percentage of the outstanding balance or an agreed fixed amount.

The cardholder can use any amount from the credit line as long as the limit has not been reached.

That sounds good, but there is a catch. As far as a remaining balance remains open, high-interest rates are incurred.


You have a credit line of 10,000 euros. The last settlement resulted in a balance of 5000 euros.

You pay 3,000 euros in time for the due date. You now have 8,000 euros available. But from the due date, you have to pay interest on the outstanding amount of 2,000 euros.

Three days after the payment date, you buy with the credit card for 200 euros. As soon as this amount is charged to the credit card, interest is also due. Now you pay interest to 2,200 euros.

With every further charge on the credit card, interest on the existing balance accrues immediately. Only when you have completely smoothed out the card are you “free of interest” again.

With a revolving credit card, you can easily lose track if you do not pay the entire due balance on time, but instead only partial amounts.

Prepaid credit card

Both Visa and Mastercard issues such as card products. The name is misleading.

Actually, they are debit cards, even if they look like credit cards.

As with EC cards, checking cards or bank cards, no credit line is granted. The card can only be used if there is a cover.

Prepaid cards are not settled via the bank’s current account, however, but via a separate card account.

Cardholders must first credit this account before they can use the prepaid credit card.

Requirements for the output


You can get a real credit card under conditions similar to a loan.

Applicants must be of legal age and resident in Germany. An account with a bank in Germany is also required.

With Visa and Mastercard, this requirement is not checked further, since in Germany the cards of these issuers are only issued via banks.

The decisive prerequisite is the adequate creditworthiness of the applicant. The result of the credit check determines whether a credit card is granted and how high the credit line is.

The applicant’s payment behavior is checked once. This is done by obtaining information from credit bureaus.

In the private customer business, Credit Checker information is usually obtained. Other credit bureaus are less often used.

On the other hand, the economic creditworthiness is checked by evaluating the regular incoming payments on the checking account and the information in the application documents.

In the case of prepaid credit cards, a credit check with the involvement of a Credit Checker or other credit agencies does not take place regularly.

For this reason, these card products are often misleadingly sold under the name “credit card without Credit Checker”.

A credit check on prepaid cards is superfluous because a credit line is not granted at all. Because these are cards that can only be used on a credit basis.

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