What are credit cards?

Here is how credit cards work, what they cost, whether you need one and if so what type of card you should get.

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Hand holding a credit card

Credit cards let you spread the cost of large purchases and sometimes borrow interest free. However, you can run up debts quickly if you spend too much and don’t stay on top of repayments. Find out everything you need to know about taking out a credit card with our guide.

How do credit cards work?

You can use a credit card to buy things in the same way you use your current account debit card. The difference is that when you spend on a credit card you are borrowing from the card provider, rather than spending your own money.

Each month you are sent a statement by your credit card provider which shows: 

  • A list of all your transactions

  • How much you owe (your outstanding balance)

  • The minimum amount you need to pay 

  • The interest rate you will pay if you don’t pay the bill in full

  • The due date for your next payment 

You can choose to pay off your balance immediately or over time, but you must make a minimum repayment each month. If you don’t pay your whole bill you will be charged interest on what you owe, unless you are within an introductory interest-free period.

Where can you use a credit card?

Most places that accept debit cards let you pay by credit card too.

You can use a credit card in person, online, over the phone, in other countries and for mail order purchases.

When you pay in person, you will usually use your PIN to authorise the transaction, but some vendors may ask for your signature or accept contactless payments.

How much can you spend on a credit card?

Credit cards come with a credit limit, which is the maximum balance you can have on your card at any one time. The average credit limit is between £3,000 and £4,000 but the amount you are offered will depend on your income and credit record. Here is how credit limits work.

What types of credit cards are there?

How much does a credit card cost?

It does not cost anything to apply for a credit card, but unless you have an interest-free credit card you will be charged interest if you do not repay your balance in full each month.

You may also have to pay an annual fee or charges for withdrawing cash and using your card abroad. Missing payments or spending beyond your credit limit will also incur extra charges.

You can find out more on how to pay off your credit card as quickly and cheaply as possible

Protect your credit card spending

Another advantage of credit cards is that you get additional consumer protection on your spending. 

Some credit card companies also offer protection against identity fraud or your purchase being stolen or lost. Each provider offers different cover and you will get  details when you apply.

How to get a credit card

It’s simple to search and apply for credit cards.

It’s best not to apply for a credit card without using an eligibility checker first. If you are rejected for a credit card it will show up on your credit record and may damage your credit score.

If you're unsure of what kind of card to apply for read our guide on how to choose a credit card that suits you.

Find the best credit card for you, whether you're looking for 0% card for balance transfers or purchases or day to day spending and rewards