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A credit card lets you borrow money to buy things. When you use a credit card to buy something, the credit company pays for it. It then sends you a bill each month for everything you owe.
You can either pay off part of this debt or pay it off in full. If you pay in full, you might not need to pay any interest charges.
If you pay a part of it, the outstanding amount is carried over the following month. This is when the credit company adds extra charges like interest.
There's usually a minimum payment to make each month. This tends to be a percentage of the total debt or a set amount. It depends on which of those 2 amounts is larger.
Using a credit card could be useful if you're buying something expensive and need to spread the cost. Or if you want to build up your credit rating.
But, as with all debt, there are terms and conditions to be aware of. If you don't keep on top of your payments, you might be hit with additional charges.
We've summed up the main types of credit cards to help you choose the right one for you. Before you get a credit card, think about your financial situation and why you need it:
This type of credit card lets you transfer your debt from an existing credit card to a new credit card. By doing this you could save money as long as the new credit card has a lower interest rate, or a 0% interest rate for a set period. You might have to pay a fee for transferring your balance, which can range from 2% to 4% of the transferred balance. Always check the terms and conditions to ensure that the new credit card works for you.
To be eligible for the longest interest free periods, you need a good credit history.
This card works best for people who use their credit card for shopping. Purchase credit cards usually come with a 0% interest period that can last several months. So, you can spread the cost of expensive purchases without having to pay interest on them for that period. Just be aware that the after the 0% interest period ends, you'll be charged interest on any balance left over, or any additional purchases made on that credit card.
These cards are designed to help you build or repair your credit score. They tend to have higher interest rates and low credit limits because credit card companies offer these types of cards to high risk borrowers.
These are credit cards that offer extra benefits for using them, for example:
Cashback
Air miles
Store discounts
Depending on the lender, reward credit cards often come with an annual fee or higher interest rates.
Travel credit cards are aimed at those who travel. Many standard credit cards charge extra fees for spending abroad. Travel credit cards let you make purchases abroad and pay them off later just like other credit cards without being charged for spending abroad. This is different to prepaid travel cards, which you add money to before you travel.
These cards let you to move money from the credit card to your bank account, which allows you to use money to pay for bills or shopping.
We've partnered with Uswitch to help you find and compare credit cards.
Find the cards you're most likely to be approved for with Uswitch's eligibility checker
See your chances of being accepted before you apply without affecting your credit score
Pick a card that suits you and apply - your chosen provider will then run a hard credit check to asses your suitability for that card
When you choose a credit card, the most important thing to consider is was you want to use it for. This can help you decide what type of credit card is right for you.
For example, if you want to improve a low credit score, you might consider a credit builder credit card. Or, if you need to make an expensive one-off purchase, then a 0% purchase card might be one to consider. This card lets you pay back the cost over several months without paying any interest - assuming you pay it off within the 0% interest period.
When you apply for a credit card, The rates and terms the credit card company offers you depend on your financial circumstances. These include things such as your income, employment status, existing debt and your credit history. This means that the interest rate, credit limit, or any 0% interest offers can vary based on your individual situation.
The annual percentage rate (APR) is how much interest you're charged on an outstanding debt over the course of a year. Most kinds of borrowing have an APR attached to them. The lower the APR, the lower the interest that's added to any debt on the credit card. Comparing the APR on different credit cards could help you work out the best card for you.
The APR a lender offers you depends on a range of factors, such as your income, financial situation and credit history. This is why it can vary depending on the individual.
Representative APR is slightly different. It is the APR that at least 51% of customers could expect to get, including any additional charges. This helps create a fairer market when comparing credit cards.
When you apply for a credit card, the potential lender checks your borrowing history for any potential red flags. This could include:
Your credit score
Any missed payments from previous debts
How many other applications for credit you've made recently
There are 2 kinds of credit checks that lenders make - 'hard' and 'soft'.
Soft credit checks are where lenders look at basic information on your credit history. They do this to help determine how likely you are to be accepted for a credit card. These checks don't show up on your credit profile, so they shouldn't impact your ability to borrow.
Hard credit checks are a more in-depth look at your credit history. This usually happens when you actually apply for a specific credit card. The lender might use this information to help determine your suitability, and what your APR and credit limit could be.
Hard credit checks are recorded on your credit report. Lenders can interpret making multiple applications within a short period as a red flag. This in turn can affect your credit score and impact your chances of borrowing in the near future.
There's no guarantee that you're accepted for any credit card you apply for. One way to gauge your chances of acceptance is to use an eligibility tracker.
This free tool gives you an idea of what kinds of credit cards you're most likely to be accepted for. And it doesn't impact your credit score.
Some lenders have a 'pre-approval' feature. This means that you're most likely to be accepted based on the details you've given. But you still need to pass identity and fraud checks, so it's not a guarantee.
No. Everyone's financial circumstances are different and credit card lenders take this into account when offering interest rates. A person with an excellent credit score might be offered a better APR than someone who's getting a credit card for the first time.
Technically no. Many credit card lenders offer 'instant' approval for their cards, which often happens within minutes or even seconds. The time between you hitting 'apply' and the application going through is often too brief for you to change it.
But, if you've been accepted for a credit card you do have 14 days to cancel the card if you change your mind. This is known as a cooling off period.
If you've gone past the 14 day period, you can can close the credit card by contacting your lender and asking them to close the account for you. You'll need to pay off any outstanding debt on the card before the account can be closed.
Yes, even those with bad credit can usually get a credit card, but they have fewer options to choose from. They might also be offered a high interest rates and a low credit limit.
That's because having a poor credit history means you're a higher risk borrower, so lenders protect themselves by charging you more for credit.
If you're concerned about your credit rating, it might be worth looking to improve your credit score before borrowing.
Yes. In fact paying your whole balance every month means that you won't be charged interest on your debt.
Interest only applies when you carry over your outstanding debt over to the next month's billing cycle.
If you're unable to pay off the entire balance every month, it can be beneficial to pay off as much of it as you can afford to every month. This reduces the amount of interest you are charged and save you money in then long run.
But always make sure you're at least paying the minimum payment every month to avoid missing a payment. A missed payment can be subject to additional fees, and can also harm your credit score.
Yes, interest rates can change. When you're offered a credit card, the APR is usually marked as 'variable'. This means it could go up or down depending on:
Changes to the Bank of England Base Rate
General changes to the UK economy
Changes in your finances that impact your ability to repay the debt
Your credit card provider is able to change interest rates at their discretion. But they must give you at least 30 days' notice of any changes.
Your lender sets your credit limit when you first get the credit card. Before you decide to increase this limit, think about whether you're able to pay back the extra debt.
You should get in touch with your credit card company directly and ask about increasing your credit limit.
If you've been with a lender for a while and have been regular with payments, they might even offer to increase your credit limit without you having to ask. But if they do offer it, it's up to you to have it increased or not.
