What are credit cards?

Credit cards let you spread the cost of large purchases and sometimes borrow interest free. However, you can run up debts quickly if you spend too much and don’t stay on top of repayments. Find out everything you need to know about taking out a credit card with our guide.

How do credit cards work?

You can use a credit card to buy things in the same way you use your current account debit card. The difference is that when you spend on a credit card you are borrowing from the card provider, rather than spending your own money.

Each month you are sent a statement by your credit card provider which shows: 

• A list of all your transactions

• How much you owe (your outstanding balance)

• The minimum amount you need to pay 

• The interest rate you will pay if you don’t pay the bill in full

• The due date for your next payment 

You can choose to pay off your balance immediately or over time, but you must make a minimum repayment each month. If you don’t pay your whole bill you will be charged interest on what you owe, unless you are within an introductory interest-free period.

Where can you use a credit card?

Most places that accept debit cards let you pay by credit card too.

You can use a credit card in person, online, over the phone, in other countries and for mail order purchases.

When you pay in person, you will usually use your PIN to authorise the transaction, but some vendors may ask for your signature or accept contactless payments.

How much can you spend on a credit card?

Credit cards come with a credit limit, which is the maximum balance you can have on your card at any one time. The average credit limit is between £3,000 and £4,000 but the amount you are offered will depend on your income and credit record. Here is how credit limits work.

What types of credit cards are there?

• 0%  purchase cards: No interest will be charged on your spending for a set period. Here is how they work.

• 0% balance transfer cards : Let you transfer a balance from one card to another so you can repay your existing credit debt without accruing any more interest charges.. Find out more about balance transfers here.

• 0% money transfer cards: Let you move cash from your credit card to your bank account. Here's more on how money transfer cards work.

• Cashback cards:  Pay you a percentage of the amount you spend on your card back to you. Here's how to use cashback credit cards.

• Reward cards: Give you points that you can exchange for rewards like air miles, vouchers or supermarket loyalty points. Here is how reward credit cards work.

• Travel cards: Don’t charge additional fees for withdrawing cash or spending overseas. Find out how to use a credit card abroad here.

• Credit building cards: Help you improve your credit history if you make payments on time, but they usually come with a high interest rate.

How much does a credit card cost?

It does not cost anything to apply for a credit card, but unless you have an interest-free credit card you will be charged 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 and using your card abroad. Missing payments or spending beyond your credit limit will also incur extra charges.

You can find out more on how to pay off your credit card as quickly and cheaply as possible

Protect your credit card spending

Another advantage of credit cards is that you get additional consumer protection on your spending. 

• Section 75 for purchases between £100 and £30,000

• Chargeback scheme for purchases less than £100

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

How to get a credit card

It’s simple to search and apply for credit cards.

• Decide what type of credit card you need (see list above)

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

• Use our credit card eligibility checker, which will show you the cards most likely to accept you.

• Apply for the card either online, by phone, by post or in person at a branch.

• Activate the card so it is ready to use and set up your repayments. Here is how to set up and manage your new card.

It’s best not to apply for a credit card without using an eligibility checker first. If you are rejected for a credit card it will show up on your credit record and may damage your credit score.

If you're unsure of what kind of card to apply for read our guide on how to choose a credit card that suits you.