How Credit Cards Work — slides
Financial Literacy Club
Credit & Debt · Lesson 3
How Credit Cards Work
Statements, grace periods, credit limits, and utilization.
12-minute lesson · learnwithflc.org
How Credit Cards Work · 1 / 19
Financial Literacy Club
Credit & Debt · Lesson 3
How Credit Cards Work
Statements, grace periods, credit limits, and utilization.
12-minute lesson · learnwithflc.org
Today's goals
By the end of class, you'll be able to…
- Explain a credit card billing cycle, statement, and grace period
- Describe how to use a credit card and pay $0 in interest
- Calculate utilization from a statement
Warm-up
A credit card gives you a $1,000 limit. Is that $1,000 of your money? Why or why not?
Think, then write your answer.
The big idea
How Credit Cards Work
Statements, grace periods, credit limits, and utilization.
Credit & Debt · Lesson 3
A credit card is a revolving line of credit. You can borrow up to your credit limit, pay it back, and borrow again — as long as the account stays open.
Credit & Debt · Lesson 3
- 1
You make purchases
During the billing cycle (about a month), your purchases add up.
- 2
The statement closes
It shows your statement balance, the minimum payment, and the due date.
- 3
The grace period
By law, the due date must be at least 21 days after your statement is sent. Pay the full statement balance by then and you usually pay no interest on purchases.
- 4
You pay
Pay in full, and you owe nothing more. Pay less, and interest is charged on what's left — and you may lose the grace period on new purchases too.
Credit & Debt · Lesson 3
Costs to watch
Late fees, annual fees, and cash advances. A cash advance (using your card to get cash) usually has a fee and starts charging interest immediately, often at a higher rate.
Credit & Debt · Lesson 3
Common first cards: a student card, a secured card (you put down a deposit that becomes your limit), or being added as an authorized user on a parent's well-managed card.
Credit & Debt · Lesson 3
The simplest rule
Only charge what you already have in checking. Then pay the full statement balance every month. You get the history without paying interest.
See it
Purchases add up during the billing cycle. The statement closes and a grace period of at least 21 days begins. By the due date, paying in full means no interest, paying the minimum means interest on the rest, and missing the payment means a late fee and possible penalty rate.
Purchases
During the billing cycle
Statement closes
Balance, minimum, due date
Due date
At least 21 days later
Pay in full
No interest on purchases
Pay the minimum
Interest on the rest
Miss it
Late fee, possible penalty APR
Real example
Sam's first statement
Sam has a card with a $1,000 limit. This month's statement shows a balance of $240, a minimum payment of $25, and a due date 25 days away. Two choices:
- Pay $240. No interest. The bureaus see a 24% utilization and an on-time payment.
- Pay $25. The remaining $215 carries over. At a 24% APR, that's about $4.30 in interest next month — and new purchases may start charging interest right away.
A few dollars of interest doesn't sound like much. The habit is what gets expensive — which is the next lesson.
Activity · pairs · 10 min
Read the Statement
- Show a simple statement: previous balance $0, purchases $340, statement balance $340, minimum payment $25, credit limit $1,000, due date 25 days after the statement.
- Pairs answer: How much should you pay to owe no interest? What's the utilization? What happens if you pay only $25?
- Add a twist: a $100 cash advance with a 5% fee. Pairs figure out the fee and when interest starts.
Check for understanding · 1 of 3
Your statement balance is $180 and the minimum payment is $25. You pay $180 before the due date.
How much interest do you pay on those purchases?
- A$0
- BAbout $3
- C$25
- DIt depends on your credit score
A. $0
Paying the full statement balance by the due date keeps you inside the grace period, so purchases don't charge interest.
Check for understanding · 2 of 3
Your card has a $500 limit, and your statement balance is $400.
What's your credit utilization?
- A20%
- B40%
- C125%
- D80%
D. 80%
$400 ÷ $500 = 80%. That's high; paying it down before the statement closes would lower it.
Check for understanding · 3 of 3
A cash advance from a credit card gets the same interest-free grace period as a regular purchase.
- True
- False
False
Cash advances usually charge a fee and start accruing interest immediately, often at a higher APR than purchases.
Remember
Key takeaways
- Pay the full statement balance and you usually pay $0 in interest.
- Due dates are at least 21 days after the statement is sent.
- Utilization = balance ÷ limit. Keep it low.
- Cash advances cost a fee plus immediate interest.
- Only charge what you already have.
Discuss
Talk it over
- Card companies make money from interest and fees. How can a card be free for someone who pays in full?
- What rules would you set for yourself with a first credit card?
Exit ticket
What is a grace period?
Answer on your exit ticket before you leave.
Nice work today.
Review this lesson anytime — free, no account needed:
learnwithflc.org/courses/credit-and-debt/credit-cards
Next up: finish your worksheet.