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.
Transaction types in more detail
- 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.
- 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.
- 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.
- 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.
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.
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.
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.
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.
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.
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.
- There are 4 main ways to borrow: card purchases, balance transfers, money transfers or cash transactions.
- The interest and fees you’ll pay for borrowing can vary a lot depending on how the card is used.
- Credit cards offer some protection for your purchases thanks to Section 75.
- Sometimes a credit card is not the right choice. Explore other borrowing options.
Want to read more?
Credit card basics
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Halifax is a division of Bank of Scotland plc. Registered in Scotland No. SC327000. Registered Office: The Mound, Edinburgh EH1 1YZ. Bank of Scotland plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under registration number 169628.