How a credit card works

Learn the basics about credit cards and what they’re useful for.

What's a credit card?

Credit cards are a flexible way to borrow money, enabling you to make transfers and payments now, with the option to repay your credit provider later.

You can choose to pay off your statement balance in full each month, or spread payments over a longer time period. It’s useful to know that you might be charged interest, unless an introductory or promotional rate applies. Fees may also apply to some transactions.

For a quick run through, watch our short video.

Watch our video for a simple explanation of how credit cards work.

What can i use a credit card for?

  • Making purchases
    A credit card could be helpful for everyday spending, or larger expenses like home improvements or a family holiday, with the option to repay over a number of months.
  • Unexpected costs
    If your car breaks down, or you need to make urgent home improvements, a credit card could help you to manage the costs now, with the flexibility to spread repayments.
  • Protection on purchases
    Most credit card purchases of over £100 and up to £30,000 are covered by Section 75 of the Consumer Credit Act, which could come in handy if anything goes wrong.
  • Consolidating balances
    If you’ve got balances with other credit and selected store card providers, you could transfer them to a single credit card. With everything in one place, your balance could be easier to manage.

Transaction types in more detail

Card purchases

  • Pay for goods or services with your credit card, in store or online, including contactless and mobile payments.
  • Spread repayments for larger purchases, such as a holiday or home improvements.
  • Use a single card to make it easier to track and manage your everyday spending.

About everyday spending cards

About large purchase cards

Balance transfers

  • Move balances from other credit and selected store card providers.
  • With everything in one place, you’ll have fewer statements and payments to manage.
  • Transfer higher interest balances and you could reduce your overall borrowing costs.
  • Transfer fees may apply. 

More on balance transfers

Money transfers

  • Move money from your credit card account to your UK current account.
  • Helpful for managing cash only purchases or unexpected bills.
  • Transfer fees may apply. Not all credit providers offer this service, and it may not be immediately available to new customers. 

More on money transfers

Cash transactions

  • The option to withdraw cash or buy foreign currency with your credit card, either over the counter or at an ATM. This also includes some cash-like transactions.
  • This might be one of the more expensive ways to borrow, but could handy in an emergency.
  • Fees and interest may apply. 

More on cash transactions

Credit card fees and charges

  • Interest is charged as a percentage of the money you borrow. The rate can vary based on the transaction type and whether a promotional or introductory interest rate applies.
  • Fees and charges may apply to some transaction types, or for things like late payments. Some lenders also charge for going over your credit limit. An annual fee might apply to some accounts

Credit card statements

While there’s a balance on your credit card account, you’ll receive a monthly statement, including:

  • Your balance on the date the statement was produced.
  • A list of transactions since the previous statement
  • Your minimum payment amount and the date it’s due.
  • A breakdown of your balance and the interest rates which apply.

More on credit card statements

When do you need to make payments?

Your latest statement details the minimum payment you need to make, along with the due date.

If you can’t pay the full statement balance, it’s a good idea to pay as much as you can to keep any interest costs to a minimum.

Ways to pay your card

Credit cards and your credit score

What is a credit score?
When you apply for any type of borrowing, including credit cards and loans, lenders consider a number of factors to assess the risk of offering you credit.

One of those factors is your credit score, which is issued to you by a credit reference agency, based on information they’ve collected about you and your financial past. 

Why it’s important
Your credit score shows how well you handle financial commitments, that you’re keeping up with payments and that the level of any existing debt isn’t too high or unmanageable.

The better your credit score is, the more likely it is you’ll be offered the lowest and longest lasting interest rates on credit products.

Frequently asked credit card questions

  • A debit card is linked to your current account. When you use it, money is taken from your account balance.

    A credit card is a separate account. When you use it, you’re borrowing money you’ll need to pay back later.

    Those are the very basic differences, but there’s more to compare, including the costs for using each type of card. You might like to check out our guide to the difference between debit and credit cards.

  • 1. What do you need a credit card for?
    Most credit cards are created with a specific use in mind, such as card purchases or balance transfers, although some offer benefits on more than one transaction type.

    2. Consider your options

    • Does this option suit my borrowing needs, or should I consider other alternatives?
    • Will I be able to make repayments, even if my circumstances change?

    3. Compare card features carefully
    As well as looking at the introductory interest rates and the length of any offers, look at differences in account fees and charges.

    How to apply for a credit card

  • The maximum amount you can borrow is also known as your credit limit. This is set based on an assessment of your personal circumstances when you open your account, but it can also change over time. For example, you could be offered a different limit, or you might request to increase or decrease it.

    You’ll find your credit limit on your latest statement, or you can check it using Online Banking and the Mobile Banking app.

    It’s good to know that if you go over your credit limit, or are regularly very close to the maximum, your credit score could be affected, which could affect your ability to get credit in future.

    More on credit limits

  • Credit cards can be used in most countries outside the UK.

    Just keep in mind any fees which might apply when you make transactions abroad. It’s a good idea to check your account terms and conditions before you travel.

    Using a credit card abroad

  • Most credit card purchases of over £100 and up to £30,000 are covered by Section 75 of the Consumer Credit Act 1974, which could come in handy if something you’ve paid for is faulty, doesn’t arrive or isn’t as described.

A summary on how credit cards work

Credit cards are a flexible way to borrow money and spread repayments over time.


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