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Credit Cards

How do Credit Cards work?

What is a credit card?

A credit card is a physical payment card that allows you to borrow money from a bank or financial institution, to purchase things and pay for them later, either in one go or by instalments.

How do they work?

  • You can use a credit card in a similar way to a debit card, making purchases online or in-person.
  • When you receive a credit card, you'll be given an agreed limit you can spend to.
  • If you pay your credit card balance in full each month, you won't pay any 'interest' to borrow the money.
  • However, if you do not pay your card balance in full each month, you will have to pay interest on what you owe, unless you have a special introductory offer from your card provider.

What is a balance?

Your balance is how much you have spent, plus any interest, fees or charges. So, if you spend £1,000 using a credit card, without any extra fees, your 'balance' will be £1,000.

What does APR mean?

APR – or 'Annual Percentage Rate' – refers to the total cost of your borrowing over a year. It always includes any standard fees, and the interest you would have to pay.

Should I get a credit card?

There are pros and cons to credit cards, so their suitability for you will depend on your circumstances. Applying for one is a personal decision, but independent financial advisors, or the UK Money Advice Service, could be good sources of impartial advice.

Generally speaking, credit cards can be good for...
  • Spreading out the cost of a purchase.
  • Helping improve your credit score. Using a credit card sensibly, making your card payments on time, could provide a positive credit score boost.
  • Interest free spending. Some credit cards come with a 0% interest period, allowing you to effectively borrow money for free, within a set time period (as long as you abide by the stipulations in your credit card agreement).
  • Some credit cards allow you to earn 'cashback', points or rewards on your spending.

Some examples of credit card disadvantages

There are several potential negative consequences from using credit cards, particularly if you struggle to make payments;

  • Unless you pay off your full balance each month, or you have an interest free offer, you will pay interest on your balance - this is effectively your 'cost' for borrowing the money.
    Borrowing with a credit card, and not paying back what you owe, could cause you to fall into rising debt, resulting in financial difficulty.
  • Not meeting minimum payments on your card, or letting your credit card debt pile up, can negatively impact your credit score. This could make it harder to gain access to credit in the future.
  • A credit card may not always be the most suitable, or cost effective, form of borrowing. Depending on what you're borrowing for, a loan or overdraft could be a better option for you. Learn more about different borrowing options.

How do I apply for a credit card?

  • Want to be prepared before starting your credit card application? 

We'll help you put the pieces together with our 5-step guide on how to get a credit card in the UK.

Questions about credit cards

What is a balance transfer?

A balance transfer is moving a credit card balance from one provider to another, often with a lower (or 0%) rate of interest for a set period. This could help you reduce your monthly payments or clear your debt quicker, but it’s important to note that there may be a fee to transfer a balance and you should consider the costs you will pay when any introductory offer expires.

Click to find out more about our Balance Transfer Credit card options

What is a credit score?

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

Lenders can access a credit file that gives them information about your outstanding borrowing, financial commitments and the way you currently manage any bank accounts, loans and credit cards.

Here's some more information on your credit score and how to improve it.

What is a credit limit?

A credit card limit is the maximum amount you can spend on a credit card. We assess credit limits on a customer-by-customer basis and look at your income, debt level and credit history to make sure that we offer a responsible limit for your credit card spend.

A few more frequently asked questions

Where next?

Our range of credit cards

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

Credit card, overdraft or loan?

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

Support with Coronavirus

If you're concerned about being unable to make repayments on a NatWest credit card, we have lots of guidance and support to help you.