How Do Credit Cards Work?

Find out what's behind every swipe


When you’re out to dinner, there’s a kitchen full of experts making your meal happen. But there’s another collaboration happening behind the scenes among businesses and banks to help you pay your bill with a credit card. So, how do credit cards work, really?

First, Meet the Cast of Characters

There are several players keeping the system moving for you—from your bank to your payment network to the business where you’re making your purchase.

  • Your bank, or card issuer, granted you a credit line based on your creditworthiness and issued you a credit card.
  • The payment network—think of Visa® or MasterCard®—connects the dots for banks that issue cards and the millions of businesses that accept cards. That’s why you usually see two logos on your card: one for your bank and the other from the payment network. Those brands are the reason people refer to “major credit cards” because they’re so widely accepted.
  • The merchant is the business where you’re making a purchase—from grocery stores to gas stations to restaurants.
  • Merchants that accept major credit cards have special banks that handle the transactions for them, called acquiring banks. They complete the path of the credit card purchase among you, your card issuer, and the payment network.

How It Works

Payment networks process billions of transactions every year. And each time a transaction happens, it starts with a cardholder like you. Say you’re at that restaurant. You’ve finished your meal and the check arrives. You put your card down and the server takes it up to the register.

The little device where your card is swiped reads your account information and sends it to the restaurant’s bank. The restaurant’s bank uses a payment network like MasterCard or Visa to receive authorization from your card issuer. Once your issuer authorizes the transaction, the issuer sends the money through the network to your restaurant’s bank.

Later, when you get your credit card statement, the balance you owe is based on what your card issuer has already covered on your behalf.

So Why Use Credit Cards?

With so much technology and communication happening behind the scenes to help you pay with your card, you might be wondering why businesses choose to use credit cards.

First, when merchants offer people more convenience and spending power, they can grow their business. Banks charge interest to cardholders when they carry a balance from month to month, which is profitable for them. Card issuers earn a fee from the acquiring banks every time a transaction happens. And acquiring banks earn a fee paid by the merchant.

Of course, you benefit too, with a simple way to pay for things. And alongside all that convenience and flexibility, you get the opportunity to build credit by using your credit cards responsibly.


We hope that you found this helpful. Our content is not intended to provide legal, investment, or financial advice or to indicate the Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional.