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.
  • Helping you understand credit cards.

    How do credit cards work?

    Let’s explain through an example.

    Meet Claire.
    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!

What can I use a credit card for?

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.

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. 

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. 

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. 

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.

Credit cards and your credit score

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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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.