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Responsible Ways to Use a Credit Card

Responsible Ways to Use a Credit Card
Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman

Updated March 18, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
There are several responsible ways to use a credit card to make essential purchases while avoiding delinquency or default. Revolving credit gives consumers flexibility in managing account balances each billing cycle.Every credit card account has a predetermined limit capping how much you may charge on the card. Cardholders are expected to pay their credit card bills on time and can make monthly payments that either meet or exceed the minimum payment.You can generally avoid paying interest on credit card purchases by paying your statement balance in full each billing cycle. Below we describe how credit cards work and how you may use credit cards responsibly.

How to Pay With a Credit Card

Consumers can use credit cards to pay for goods and services if the merchant accepts credit card payments. Some merchants may not accept all credit cards. For example, some merchants may only accept cards on the Visa and Mastercard networks.If the merchant accepts your credit card, you may insert the card into an electronic payment terminal if the card has an embedded microchip. Some cards allow you to make transactions by tapping the card on the payment terminal or mobile device screen.Your credit card may also feature a magnetic stripe that can facilitate transactions by swiping the card through an electronic payment terminal.Some merchants may accept credit card payments online or via telephone. In that case, you may need to provide your account number, expiration date, and other unique information associated with the card to complete the transaction.

How Credit Cards Work Step by Step

Here’s how credit cards work step by step:

1. Making the Purchase

The consumer makes a purchase by presenting the merchant with a credit card. You can present the card in person, online, via telephone, or by mailing paperwork listing the credit card’s account details.

2. Entering the Transaction

The consumer or merchant may insert, swipe, or tap the credit card to enter the transaction through an electronic device or payment terminal in person.When making a remote purchase through the internet, telephone, or postal mail, the consumer can enter the transaction by stating or documenting the cardholder account details for the merchant to key in and process.

3. Transmitting Data

The merchant transmits transaction data to the issuing bank that issued your credit card. The merchant transmits this data electronically by sending it through the credit card network associated with the card.

4. Authorizing the Transaction

The issuing bank may authorize the transaction if the transaction complies with the terms and conditions of the cardholder’s credit card account agreement. As mentioned above, the issuing bank is the financial institution that issued your credit card.

5. Responding to the Merchant

If the issuing bank provides the merchant with an authorization to proceed, this response allows the merchant to capture the transaction. This means the merchant can demand payment from the issuing bank.

6. Completing the Transaction

The merchant issues a receipt to the cardholder upon completing the transaction. The cardholder at this stage accepts liability for the transaction and may sign a sales slip to acknowledge this liability.

7. Submitting Captured Transactions

The merchant submits the captured transaction to a financial institution known as the merchant’s bank or acquiring bank. The merchant can submit captured transactions in batches or at the end of the day.The acquiring bank at this stage typically receives funds from the issuing bank through the credit card association. Visa, Mastercard, American Express, and Discover are examples of credit card associations.

8. Depositing Funds

The acquiring bank or its third-party processor deposits the funds into the merchant’s bank account at this stage. The merchant typically receives the funds within days minus processing fees.

9. Cardholder Receives Billing Statement

The cardholder receives a billing statement from the credit card issuer listing the transaction. The cardholder can make minimum monthly payments or pay off the statement balance in full.

Ways to Use a Credit Card

Responsible credit card usage can include the following:

Pay Your Bills on Time

You can keep your cardholder account in good standing by paying your credit card bills on time and meeting or exceeding any minimum monthly payment due. Credit card issuers typically deliver billing statements every month.Consumers who want to establish a credit history can consider top credit building cards. Paying those bills on time can help you develop good credit.

Charge What You Can Afford

One of the ways to help maintain your cardholder account in good standing is to charge what you can afford. Credit cards may allow you to make large purchases up to your account limit. Consumers have great flexibility on how to use the card, but carrying large balances from one billing cycle to the next can accrue high interest charges.

Stay Below Your Credit Card Limit

You can stay below your credit card limit by watching your account balance, moderating your spending, and making sizable payments each billing cycle. Credit card issuers may allow cardholders to make purchases that exceed the credit card limit. Exceeding your credit card limit can put your account at risk of delinquency or default.

Use Your Rewards

Using a rewards card can earn you points with specific credit card transactions. You could later redeem those points into something of value, but some rewards can expire. You can avoid losing those points if you redeem them before they expire.Some credit cards offer 2% cash back on all purchases, particularly cards for good credit. 

Finding Your First Credit Card

Finding your first credit card can be simple if you have a regular source of income. Having a steady income and zero credit card debt may be enough for you to get cards for bad credit if not cards for fair credit. You can open a credit card account to help build your credit history.

The Takeaway

Many merchants accept credit cards as a form of payment. Credit cards may allow you to shop and make essential purchases when short on cash. They can also promote e-commerce by giving you an account that can make online transactions.Having access to revolving credit gives you spending power as a consumer. You can preview credit cards on Lantern by SoFi and apply for a card that may help you build credit.
Photo credit: iStock/Prostock-StudioThe tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.SOLC0122078

Frequently Asked Questions

How do beginners use credit cards?
How do you pay with a credit card?
How does a credit card work step by step?

About the Author

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman writes about personal loans, auto loans, student loans, and other personal finance topics for Lantern. He’s the recipient of more than 10 journalism awards and currently serves as a New Jersey Society of Professional Journalists board member. An alumnus of the Philadelphia-based Temple University, Abdur-Rahman is a strong advocate of the First Amendment and freedom of speech.
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