When you apply for a credit card, the financial institution asks for various information related to your income and debts and then pulls your credit report to determine how much credit they are willing to extend to you. For example, the company may decide that your maximum available credit is $10,000. The company may also have a daily limit and a transaction limit.
The card issuer will also determine your annual percentage rate (APR), which is the rate they charge you on any outstanding balance after the payment due date, after the introductory period, if one is offered. These rates are usually high and range from 14.99% to over 21.99%. This is your cost of borrowing the money. Unless you pay the balance in full before the end of each billing cycle, you can avoid paying any interest fees.
Each time you make a purchase using the credit card, the purchase amount is deducted from your available credit until you pay it back. The card is tied to a billing cycle, and at the end of each cycle, the credit card company issues a statement itemizing the transactions you've made during that cycle, your total balance, minimum payment due, and due date.