A Guide to Credit Cards

A Guide to Credit Cards

Credit cards provide you with credit, and can be a very useful and flexible way of spreading out the cost of purchases, especially expensive ones.

A credit card is different to a debit card in that you’re always effectively borrowing money when you use it to transfer or withdraw money, or pay for something with it.

You are charged interest on the loan, although the majority of cards have an interest-free period of up to 59 days, so you can avoid paying any interest if you pay off your bill in full every month.

However, it is important to note that credit cards should not be seen as a long-term loan, and if you do not manage to fully pay off your monthly bill then you could accumulate substantial interest charges. Additionally, you may face penalty charges for late or missed payments.

In order to be granted a credit card, you need to have a credit agreement with the provider, which is regulated by the Consumer Credit Act 1974.

Types of credit cards available

There are a number of different types of credit card available, and it is important to consider which is the most suitable for you based on your needs. Below are just some of the credit cards offered:

Standard credit cards

Anyone aged 18 and above who meets the lender’s eligibility criteria can take out a standard credit card. You can either settle the debt in full without any interest within a certain period of time, or pay off a portion of the debt and carry forward the remaining balance with interest.

Gold and platinum credit cards

These cards are only available to people on higher incomes, and may contain charges. However, in return they can provide you with lower interest rates and perks such as free travel insurance.

Affinity credit cards

These are linked to charities, stores and other such organisations, which may reward you for using the credit card.

Balance transfer credit cards

These credit cards can help you save money on interest payments. They offer you an interest-free period of between one and three years in exchange for a transfer fee, which is typically 1 to 3 per cent of the balance.

Cashback credit cards

When you spend money with one of these cards, you will get back a percentage of what you spent.

Charity credit cards

For every transaction, a charity receives a nominal amount of money. However, these cards often carry high interest charges, so it is best to ensure you pay them off every month.

Interest-free purchase credit cards

With one of these cards, you can receive free credit for a set introductory period. Typically this period tends to be between 3 and 16 months, and once this time passes then you would end up paying the lender’s typical interest rate.

Prepaid credit cards

These cards do not charge interest, but need to be topped up with money before you can use them. For people who have been refused credit, prepaid credit cards can be a useful option.

Reward credit cards

Similarly to cashback cards, you are rewarded for spending money. However, rather than cash back you will receive rewards points such as Airmiles, which you then redeem with partner organisations.

Important things to consider when choosing a card

There are several aspects to consider before you select a card, such as the time period of free credit, when the interest will be charged, whether the card has an annual charge, and how much you will be charged for missing a monthly payment.

However, the most important thing to consider is the Annual Percentage Rate (APR), if you are unlikely to pay off your balance every month.

The APR is the annual rate which you are charged for borrowing money. Lenders are required to include automatic fees and interest in their APR figure, giving customers a clear indication of how much they will pay a year.

Your credit history is important

Lenders carry out credit checks when you apply. If they judge you to have a poor credit rating then they may reject your application, or offer you a card with a higher interest rate, rather than the advertised rate.

Therefore, if you have a poor or non-existent credit history, you may find it more difficult to be accepted.

In this situation, a credit builder card may be a good option for you. It generally has a high interest rate and may even have a cap on the amount of money you can borrow, but if you use it responsibly then it could boost your credit rating and help you secure a better deal in the future.

Paying off credit card bills

There are a number of ways for you to pay off your credit card bill, with the four most common being:

  • Via direct debit
  • Online, if you have online banking
  • By cheque
  • In person at the bank

Consolidating credit card debt

If you have multiple credit card dents, it is often recommended to transfer it all onto a singular low-interest credit card to save money and make the debt easier to manage.

Most credit card providers offer low or 0 per cent interest rates on balance transfers, although this is generally for a short introductory period.

Credit cards can give you extra protection

Under Section 75 of the Consumer Credit Act, credit card providers and retailers must take joint responsibility for purchases that go wrong, provided the purchase was for between £100 and £30,000.

This is also the case if you buy something faulty abroad. You can ask your credit card company to help sort it out or refund you the money, which helps to make your life easier.

Using credit cards abroad

You can use your credit card abroad just as you would at home, but be aware that it may result in extra charges, such as for converting currency.


0 per cent purchase credit cards

Credit cards which do not charge interest on purchases for a set introductory period

Adverse credit

The term for people who have a poor credit history or rating

Cash-handling fee

Each time you use your card in a cash machine, your credit card provider charges you a fee for withdrawing money, both in the UK and abroad.

Foreign-usage loading

A charge issued by your credit card provider for using your card abroad.


Your Personal Identification Number (PIN) is the number you need to key in when you withdraw money or purchase an item with your card.

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