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Credit Card 101

How Your Credit Line Works

Each time you make a purchase, your available credit goes down by that amount. If you have a $300 credit limit and you make a $25 purchase, you’ll have $275 in available credit. You’ll owe $25 to the credit card company. If you borrow another $50 before paying back the $25 you borrowed, you would owe the bank a total of $75 and have $225 in available credit.

What makes a credit card different from a regular loan is that your credit limit is available after paying down the balance. Assuming you started with a zero balance, if you paid back the $75 that you owed by your credit card due date, in most cases, you’d have $300 of available credit again.

You can repeat the process of spending up to your credit limit and repaying the balance as often as you like, provided you abide by the terms of the credit card.

You can continue borrowing against your credit limit over time, which is why credit cards are referred to as revolving accounts or open-ended accounts.

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