Credit cards

Find out how credit cards work

Understanding credit cards

Put simply, a credit card is a way of borrowing money that lets you purchase things up to an agreed limit and pay for them later, either in one go or by instalments.

You can buy things in the same way you use your debit card, but there’s a key difference. Debit cards use money from your current account, whereas paying on your credit card means borrowing money from your credit card provider.

When you spend on a credit card, the amount is added to the card’s balance. That – alongside any interest and fees – is the total amount you owe. 

What you should know

A credit card can be an expensive way of borrowing, so you should try and pay your full balance every month. If you don’t, you will be charged interest on your balance, unless you have a special introductory offer from your card provider.

If you can’t pay the full balance, you should make sure you pay your minimum payment, as missing a payment altogether will likely result in charges and will affect your credit score.

The representative example is a tool that all lenders use to help you compare the cost of borrowing in one simple format. It shows you all the important costs in one place. Nice and handy.

First up is the purchase rate, which is the interest rate you’ll be charged when buying most goods or services on the credit card. If you pay off a credit card balance in full every month, you will not be charged interest.

You’ll also see the Representative APR, which is the annual percentage rate that’s used to indicate the full cost of borrowing.

Next, you’ll see the assumed credit limit, which is a guide limit that all bank’s need to quote to allow you to compare different cards. We tend to use £1200 as a guide, but that's unlikely to be the exact credit limit you get when you apply.

What you should know

Most banks will treat your application on an individual basis, which means the rate and terms you get will not always be the same as the rate you see before you apply.

A balance transfer is when you move a credit card balance from one provider to another. This type of offer could help you reduce your monthly credit card payments or clear your debt quicker.

If you hold a balance on a credit card and you want to get an indication of how long it will take you to repay the balance, you can use our credit card repayment calculator.

Your credit score is used to help lenders decide whether to lend you money, how much to lend you and how much interest to charge you. The higher your score, the better your credit rating.

Lenders can access a credit file that gives them information about your outstanding borrowing, financial commitments and the way you currently run any bank accounts, loans and credit cards. So there’s lots they can see.

There are a number of ways your credit score could be negatively impacted. Such as:

Applying for credit too often

Always having a big balance on your credit cards

A history of late or missed payments

Missing credit card or loan payments

Failing to pay your mortgage on time

If  your credit card provider gives you a limit that’s more than you need, you can ask them to lower it, if you like. Always best to avoid the temptation.

What you should know

Credit scoring is used for more than just financial products. You might need it to get a mobile phone contract, a mortgage or insurance. So it’s important to be aware of your score. You can check yours through agencies such as Experian.

There are a number of different types of credit cards on the market, which can be overwhelming. Here we'll show you the ropes.

Incentive based credit cards

It's always nice to be rewarded. That's why some credit card providers will offer incentives in return for spending money on their card. This might be a good option if you like to repay your balance in full every month. However, you should always consider the interest rate costs alongside any incentives to avoid any nasty surprises.

Travel benefit credit cards

Some credit cards also offer additional travel benefits, like no foreign transaction fees or additional insurances. This may be advantageous if you like a jaunt overseas now and then.

Low rate credit cards

Low rate credit cards could save you money in interest when making purchases. That's always a good thing, but remember to consider the APR associated with each card to understand the overall cost for comparison.

Student credit cards

If you're at college or university and have a student account you might also consider student credit card to help with your day-to-day finances. This type of credit card typically has a lower credit limit, and may also provide additional incentives depending on the credit card provider.

Head on over to our credit card range to check out what we can offer. Over 18s only. Eligibility criteria applies.

Get the thumbs up before you start.

Use our eligibility checker to find out whether you’re likely to be accepted for a credit card with us. It takes just 2 minutes and there’s no impact on your credit rating. 

Other ways we can help

Credit card, overdraft or loan?

If you're looking to find out whether a credit card, loan or overdraft is right for you, then our borrowing needs tool is a good place to get started. 

Our range of credit cards

Take a look at our range of credit cards and compare costs, benefits and features. It's all here in one place. Eligibility applies. Over 18s only.

Something else we can help you with?