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Learn the basics about credit cards and what they’re useful for.
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.
Helping you understand credit cards.
How do credit cards work?
Let’s explain through an example.
She’s got herself a new credit card to help pay for a few essentials. Unlike her debit card, Claire’s credit card pays with borrowed money, which then needs to be paid back later.
Claire will be charged for borrowing in two ways:
Interest, which is worked out as a percentage of the money Claire’s used on her credit card.
And fees, such as an annual fee or a charge for things like late payments.
When you get a credit card, it comes with a credit limit. This is the maximum amount you can borrow with the card.
It’s based on your own situation… and your credit score. And you’ll have a minimum monthly repayment you’ll need to make. Although you can vary how much you pay back each month above that amount.
So let’s say Claire’s had a few extra recent expenses, resulting in her credit card spend building up.
Every month, Claire will get a credit card statement showing her balance, the minimum she needs to repay and when to pay it by.
If Claire can pay off her entire balance before the due date, then happy days – she won’t pay any interest at all.
If Claire pays it back over a longer period, that’s fine too, but she’ll pay some interest, unless she has an interest-free offer.
When making repayments, Claire will end up paying less interest if she can pay more than her minimum amount each month.
That’s why we think it’s a good idea to pay off as much as possible, whenever you can.
So… how could using a credit card help you?
Some people use theirs to spread their spending.
For example, you could furnish your new home when you move in, then pay it all off over the course of a year.
Or, if you already have borrowing, a balance transfer lets you move your balance from one credit card to another with a different provider.
This could mean moving to a card with a lower interest rate, which might reduce your monthly outgoings.
Credit cards also offer protection under Section 75 of the Consumer Credit Act.
This means you could get your money back if you run into a problem with a purchase made on your card, as long as it’s over £100 and up to £30,000.
Let’s quickly go over some key points.
When choosing a credit card, think about how you’ll want to use it. Take time to find one that’s right for you.
Be aware of interest charges and fees.....and keep your credit limit in mind.
And remember, the more of your balance you pay off each month, the less interest you’ll pay.
We hope this info helps. Thanks for watching!
While there’s a balance on your credit card account, you’ll receive a monthly statement, including:
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.
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
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.
Credit cards are a flexible way to borrow money and spread repayments over time.
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.