How do credit cards work?

Where can you use them?

You can spend with a credit card in person, online, by phone or by post.

They work in the same way as debit cards, but instead of the money coming straight out of your bank account, you are sent a statement each month.

This is a bill covering what you have spent, and you then need to pay back this amount, either immediately or spread over several payments. If you do not pay it off straight away you will normally be charged interest.

This means that credit cards let you borrow money, so their providers are careful about who they will lend to.

Will every credit card accept you?

No - when you apply, the provider will decide to accept or reject your application. They base their decisions on information like your income and your credit history.

You could be rejected when you apply if you have never held a credit card, loan or mortgage before because you will have little or no credit history.

However, you may have a credit history if you have ever taken out an overdraft, car loan, store card or mobile phone contract. Some banks are more likely to offer you a credit card if you already have a bank account with them.

Your credit record will also affect the interest rate and credit limit you are offered.

What is a credit limit?

When you get a new card, your provider will confirm its credit limit. This is the most you can owe on your card at any point.

For example, if you had a credit limit of 1,000, you would not be able to spend more than 1,000 on your card without paying off some or all of what you owe first. If you spend over your credit limit you will be charged a fee.

Here is how credit card limits work and how to avoid getting charged.

Choose your first card

You will need to find a card that offers the features you need, that will not cost too much and that you are likely to be accepted for.

Credit cards can come with spending incentives like cashback or long interest free periods. This guide explains the different types of credit card and what features they come with.

Although it might be tempting to apply for the top deals, these cards are usually only available if you earn a certain amount and have an established credit record.

Applying for too many cards can damage your credit history - here is how to find cards that are likely to accept you so you can just apply for these.

The best way to choose a card is to compare them online. Use our comparison to find a card that offers everything you need.

You can also get cards designed for those who have never had one before:

Cards for building your credit record

Although using any credit card can help your establish a credit history, credit building cards are more likely to accept first time borrowers.

Using a credit card could help to build your credit history if you:

This behaviour will show on your credit record, so lenders will be able to see that you can borrow responsibly. This should make it easier to get accepted for credit in future and could improve your credit record in six months or more.

Credit building cards can sometimes offer incentives like free credit reports, while others reward you for using the card sensibly with a lower interest rate or higher credit limit.

However, they do not offer the best incentives and come with high interest rates (often 30% APR or more), so compare them to other cards first.

Cards designed for students

If you are a student looking for your first card, read our guide to student credit cards.

How much does a credit card cost?

You do not have to pay to get a credit card, but they can start to cost money over time:

  • The interest rate determines how much you pay if you borrow money with your card. If you repay in full each month, you will not need to pay interest.

  • Charges for breaking the card's terms, like if you pay your bill late or go over your credit limit.

  • Any annual or monthly fees for holding the card.

You can also be charged for withdrawing cash from an ATM, spending abroad and more. Here is a list of every fee on credit cards so you can avoid having to pay them.

Apply for your first card

You can usually apply for the credit card you choose online, by phone, by post or in person.

It is usually quickest to apply online by completing an application form on the provider's website. If you would prefer to have someone talk you through the process, you could apply by phone or in a bank's branch instead.

Here is how to apply for a credit and what happens after you make your application.

How to use your new card

Once you have your first credit card, it is important to know how to use it to make sure you do not spend beyond your means, get into debt, damage your credit record or be charged fees for breaking the card's terms.

To find out how much you should repay each month and how to make payments, here is how to use and manage your card.

What to do if your application is rejected

If your application is turned down, do not apply again for the same card - most providers will automatically reject you if you reapply within six months.

Here is how to get accepted next time you apply by building your credit history, timing your application well and cleaning up your finances.

If you need a card to spend on until you can get a credit card, consider a prepaid card instead. These can be used in the same places as credit cards, although you have to add funds to them before you can spend.

Should you get more than one credit card?

Although it is possible to have several credit cards at once, having too many can harm your credit record.

Here is how the number of cards you have can affect your finances and credit record.