Definition
A card that lets you borrow up to a set limit and pay later; unpaid balances are charged interest.
What it means
A credit card is a revolving line of credit. Each month you get a statement with your balance and a minimum payment. If you pay the full statement balance by the due date and the card offers a grace period, you usually pay no interest on purchases; otherwise interest is charged at the card's APR, which is often high. The federal Credit CARD Act of 2009 requires statements at least 21 days before the due date, limits most fees and rate increases on existing balances, and requires that payments above the minimum go first to the balance with the highest rate. Federal law caps your liability for unauthorized credit card charges at $50, and you can dispute billing errors. Paying on time and keeping balances low helps build a credit score.
Example
A $2,000 balance at 24% APR with $60 monthly payments takes about 4.5 years to pay off and costs about $1,330 in interest. Paying $200 a month clears it in about 12 months with about $250 in interest.
Illustrative numbers only. Your situation will differ.