When you acquire a credit card, what happens is that the credit card issuer extends you a line of credit, and charges you an interest rate for the privilege of that credit. In former times, this practice was known as usury and was condemned by many religions as immoral. The principal argument against usury was that it created profit from avarice and greed rather than labor or work. The charging of interest is still illegal in some Muslim countries, stemming from the belief that lending money at interest leads to extensive worry about money instead of God.
Here in America, credit card interest charges are the principal way that credit cards create revenue for the credit card issuer. The practice of charging interest commodifies the concept of time. The card issuer most often a bank gives you, the consumer, an account number and an associated card that can be used to make payments at various locations with money that you have borrowed from the bank. The bank pays the bills presented to them, and charges you interest on the card for any remaining balance that you have not yet paid off. The longer you maintain a balance on the card, the more interest they charge, which is compounded to the principal and added to your balance. Over time, this can create a snowball effect and if you do not pay off the balance, you will continue to accumulate credit card debt without even making a purchase.
How does the bank determine what interest rate it charges you? Banks set your interest rate based on your creditworthiness, as determined by credit history reports from the major credit bureaus, such as Experian, Equifax and Transunion. Typical credit card interest charges in the United States can be between 7% and 36%, based on the borrowers credit rating.
