Credit card companies are basically in the business of making loans to consumers and business. They are financial institutions that charge you, the consumer, a certain amount of interest on the money you use that they have made available to you.

Credit cards come from many different sources such as banks, stores, airlines, car companies and so on. Most people have a credit card from the bank with which they deposit their money. How this works is, you the depositor, put money into the bank and they promise to pay you a certain, low amount of interest. The bank then, in turn, loans your money out to others in the forms of loans and credit cards at a higher interest rate.

The difference between the interest they are paying you and the interest they are getting from their loans and credit cards is how the bank earns money. And, given that the average savings account interest rate is around 3% and the average rate on a credit card in the UK is 18%, they are making quite a bit of money. That is why so many other non-banking institutions got into issuing credit cards. There are, in fact, some companies that make more with their credit card business than they do with their original product or service.

Generally, bank owned cards have the best value. Store cards tend to have higher interest rates, higher fees/penalties and have trickier billing rules to live by. You are more likely to encounter “two cycle billing” with a store card than with a bank but, that is changing. “Two cycle billing” is where the issuer charges you interest on the average balance on your card for two months instead of one. In other words, you could incur an expense in one month, pay it off that month but still be charged interest on it in the next month even though it was paid off.

The main thing to remember about any credit card company is that they are in the business to earn money, not lose it. They are not philanthropic organizations giving out money to those who need it. Keep this in mind and you will better understand how your credit card works, how to control it and how to use their credit to your advantage.