How different credit cards work

Credit cards are more frequently used to do online shopping or to pay for things while abroad. How do credit cards differ? And what are they best used for?

With a credit card, you can withdraw money from a cash machine as well as pay for things from an online or physical shop. And you can also make contactless payments if your card has an NFC chip in it; if it does, your card will have the wave symbol on it. The payment amounts are first added to your credit card account and therefore – unlike debit cards – not directly debited from your current account.

There are three types of credit card, each with a different method of settling payments. 

Charge card

In Germany, the most common form of credit card is the charge card. Payment amounts within your spending limit are added to your credit card account by the card company and then debited from your current account in one sum, usually once a month. This allows the card holder to defer payment for a short period as no interest is charged until the amount is debited.

Revolving credit card

Widely available in Anglo-American countries, the revolving credit card is also becoming increasingly popular in Germany. This version of the credit card requires you to take the initiative and pay off your account when due at the end of each month or pay it off gradually in instalments. Any amounts not paid off at the end of the month are then subject to interest payments.

Prepaid credit cards

There are also credit cards that need to be ‘topped up’ before being used, such as the prepaid card. The desired amount of money first needs to be transferred to the card before it becomes available as credit. When you pay for something using this type of card, your credit balance is offset against the amount of the purchase. The prepaid card does not have a (real) credit function. You can only pay for things if you have enough money on the card. 

Prepaid credit cards are therefore good for young people on holiday because they cannot spend more than the credit balance on the card. But if they are running low on funds, parents can help them out by transferring money on to their credit card, wherever they are in the world. 

Secure online purchases 

If you want to use your credit card to do some online shopping, you’ll be asked for two-factor authentication. That is, you’ll be asked for two means of identifying yourself (e.g. passport, SMS or app on your smartphone) before you can confirm the transaction. The security procedure for credit cards is known as 3D-Secure. Different credit cards have different names for this authentication procedure: Visa calls it “Verified by Visa”, Mastercard calls it the “Mastercard Identity Check” (formerly known as “Mastercard SecureCode”) and American Express calls it the “SafeKey” procedure.

It is aimed at preventing unauthorised third parties purchasing items on the internet with your credit card data. You can register for the procedure via your online banking or contact your bank for further support.

Cost to use abroad

The price for withdrawing money from cash machines or for paying for items with your credit card abroad varies from bank to bank and depends on the country you are in. Payment amounts in a foreign currency are added to your account in euros at the current foreign exchange rate. For further details, see the respective list of prices and services of the bank that issued your card.