What is a credit card and how does it work?

You can use a credit card to buy things in the same way you use your debit card.

The difference: debit cards use money from your bank account. Spending on a credit card means borrowing the money from the card provider.

Each time you spend, the amount will be added to the card's balance; this is the total amount you owe.

You will be sent a credit card statement each month that you can choose to pay off immediately or gradually over time.

If you choose to pay it off later, you will normally be charged interest on the amount you owe.

Pros and cons of a credit card

What types of credit card are there?

Credit cards that charge 0% interest on purchases

All credit cards let you make purchases, but some let you spend without charging any interest for a set period ranging from a few months up to more than two years.

Balance transfer credit cards

If you owe money on a credit card already you can move the outstanding balance to a new card that will cost less to repay.

Many balance transfer cards charge 0% interest for a set period ranging from a few months up to more than three years. Although you will usually have to pay a fee when you make the transfer, this could work out much cheaper than paying interest on your existing card.

Money transfer credit cards

These cards let you move cash from your credit card to your current or savings account to spend, save or pay off an overdraft or loan.

You will then need to pay off the balance of your new credit card and any transfer fee. Many offer a 0% period for several months when no interest is charged.

Cashback credit cards

These pay you a percentage of the amount you spend on your card. Some will pay higher amounts on certain purchases or during the first few months. The cashback you earn will be added as a credit to your card's statement.

To benefit fully you need to pay off your credit card statement every month because otherwise you will pay out more in interest charges than you will earn in cashback.

Reward credit cards

These give you points on your spending that can be exchanged for rewards like air miles, supermarket loyalty points, shopping vouchers, discounts on fuel or household bills and hotel vouchers.

These cards only offer value for money if you pay them off in full each month; otherwise you could pay more in interest than you earn in rewards.

Credit cards that are cheaper to use abroad

You can use most credit cards abroad but it can be expensive because most providers charge fees.

However, some credit cards are specifically designed to be used abroad. Some come without fees for withdrawing cash or spending in another country.

Cards for building credit

Some cards are more likely to accept your application even if you have never borrowed before or have been rejected for other cards in the past.

Credit cards designed for people with bad credit often come with a high interest rate but can help improve your credit history if you stay in your credit limit and pay off the balance in full each month.

How much does a credit card cost?

It does not cost anything to apply for a credit card, but it could cost you money in interest if you do not repay your balance in full each month.

You may also have to pay an annual fee or charges for withdrawing cash, using your card abroad, missing payments or spending beyond your credit limit.

However, if you manage your credit card sensibly and pay your balance in full each month, you can avoid paying any interest or charges.

Why you should always make the minimum monthly payment

What is the minimum amount?

It is usually at least 1% of the outstanding balance plus the interest for that month and all fees.

This is the lowest amount you can pay back each month without being charged late payment fees.

You can ask your provider or check your statement for the minimum payment amount.

You will need to pay back the full balance and all the interest at some point, and the smaller the monthly payments you make, the longer it will take and the more it will cost in total.

How much can you spend on a credit card?

Credit cards come with a credit limit, which is the maximum balance you can reach without having to pay off some of it. This guide explains how credit limits work.

What protection do credit cards offer?

Most purchases you make with a credit card that cost between 100 and 30,000 are protected by a law called Section 75. This will cover you if a company fail to provide what you buy from them.

If you buy something that costs less than 100, you can use the Chargeback scheme to get your money back instead.

Some credit card companies also offer additional protection against identity fraud or your purchase being stolen or lost. Each provider offers different cover and gives details when you apply.

How to get a credit card

  1. 1.

    Choose a card that suits your needs using our credit card comparison.

  2. 2.

    Apply for the card either online, by phone, by post or in person at a branch. The provider will then look at your application, run a credit check and let you know if you have been accepted.

  3. 3.

    Activate the card so it is ready to use and set up your repayments. Read this guide for some tips on how to set up and manage your new card.

How to choose your first credit card

When you apply for your first ever credit card, check the application criteria to see if you are likely to be accepted. If you have never held any credit before, providers will have little to go on when they check your credit history.

Here is how to find cards available to first time borrowers and how to build your credit history.

Will your application be accepted?

Card providers will check your credit history and financial circumstances to decide whether to accept your application.

Here is how to find out which cards are most likely to accept you.

Credit card FAQs


Who can get a credit card?


You need to be at least 18 and a UK resident to get a credit card.


How long will it take to arrive?


Once your application is accepted, you should get your card in about 7-10 days.