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Credit Cards

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How do credit cards work?

A credit card lets you pay for things on credit - it acts as a short-term loan.

You can spend up to the credit limit set by the provider, then either pay off your bill in full each month or make monthly instalments.

If you don’t pay off the balance in full, you’ll need to pay at least a minimum monthly amount, which will be set by the provider depending on your balance.

There are different types of credit cards to meet different needs, including reward, purchase and balance transfer credit cards.

Every credit card has an interest rate. The interest rate your provider charges you will depend on your credit rating, as well as the provider’s own criteria.

Some cards have introductory rates, which means a lower interest rate when you first take it out. For example, 0% interest on purchases or balance transfers for a number of months.

But watch out for other fees, and always be certain of when it will end as you’ll start being charged interest.

Do I need a credit card?

That’s up to you. If used sensibly, they can help you:

  • spread the cost of big purchases
  • earn cashback and loyalty points
  • give you consumer protection
  • help cut the cost of any existing debt you have

But whether or not you need one, depends on your own circumstances and any financial commitments you already have.

Compare credit cards and get the deal that's right for you

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Comparing credit cards

A credit card can be a useful personal finance tool, but it’s important you find the right one for your needs

  1. Use our smart search and browse your options

    Check which credit cards you’re more likely to be accepted for without affecting your credit score. We just need to know a bit about:

  2. You

    Your name, date of birth and email address

  3. Your home

    Whether you’re a homeowner and how long you’ve lived at your address

  4. Your finances

    Your employment status and annual income

What type of credit card is best for you?

There is no ‘one size fits all’ credit card – the right one for you depends on your circumstances so you should always compare your options. Use our smart search to see which credit cards you’re eligible for first – without affecting your credit rating.

Credit cards for those with bad credit

There are credit cards for people with bad credit scores.

If you’re accepted for one of these cards, you can spend on them and repay the bill in full each month to help improve your credit record.

These cards will usually have a high interest rate, so it might be worth looking into different ways to pay off your existing debt and boost your credit rating first.

Interest free credit cards

With interest free credit cards, you won't be charged interest on purchases, balance transfers or in some cases both. This will usually be for a set amount of time – say two years – then your provider will start charging you interest.

Balance transfer credit cards

These cards let you to move an existing credit card debt over to a balance transfer card which has either a 0% interest introductory period or a low interest rate.

Make sure you check the transfer fees and the interest rate you’ll be charged when the interest-free period ends.

What types of credit cards are there?

There are different credit cards to suit various situations.

Purchase credit cards

These sometimes offer a long interest-free period before you start paying interest, so you can spread the cost of a major purchase.

You still need to make at least the minimum monthly repayments to avoid default fees and you should aim to repay the full balance before the interest free period ends if you want to avoid paying interest altogether. 

Find out more about purchase credit cards 

Reward credit cards

Reward credit cards earn you points that you can redeem via a rewards scheme, like Tesco Clubcard, Nectar or Air Miles/Avios. 

Find out more about reward credit cards

Cashback credit cards 

Cashback cards allow you to earn back a percentage of what you spend as an annual bonus. You just need to make sure you clear any outstanding balance each month, otherwise the interest you pay will be more than the cashback you earn. 

Find out more about cashback credit cards

Business credit cards 

Sometimes known as a company credit card, it can be used by you and your employees to make purchases for your business. Business credit cards can sometimes offer rewards, cashback and travel insurance, but look out for annual fees. 

Find out more about business credit cards 

Student credit cards 

These work in exactly the same way as any other credit card but they sometimes have special offers and features that are useful to students. They can be useful if you’re responsible with your finances and are sure you can at least make the minimum monthly payments to avoid interest charges. 

Find out more about student credit cards

Use our smart search to find credit cards you’re more likely to be accepted for

Compare credit cards

What are the benefits of having a credit card?

As long as you pay off the balance on time, credit cards can:

Improve your credit score – using a credit card responsibly can allow you to build up your credit score, which could help you when it comes to applying for credit in the future. 

Protect against fraud – it’s easy to cancel your card if it’s stolen and you might be able to get your money back if it’s used fraudulently.

Rewards and extras – you can get credit cards that let you build up rewards and offer cashback incentives.

What is the difference between a soft and hard credit check?

A soft credit check – sometimes called a ‘smart search’ – doesn’t show up on your credit record so other providers can’t see it, but a hard search will leave a mark and could affect your credit score with other lenders.

How do credit card applications affect your credit rating?

Your credit rating is a way of showing how risky it would be to lend to you. The better your rating, the more likely you are to be accepted for a credit card.

If you make too many credit applications in a short space of time, it can have an adverse effect on your credit record, whether or not your applications were successful. That can make it harder to get approved for credit in the future.

That’s why you should try to space out applications and don’t just keep applying elsewhere when a lender rejects you.

You can also use our smart search to see which options are available to you, without leaving a trace on your credit score.

Keep in mind that your credit ratings can also be affected by how close to your credit limit you are – keeping your balance at around 30% of your limit might help with being approved for more credit.

Will I be accepted for a credit card?

This depends on your credit score and financial situation. If you have a poor credit history, expect to pay a higher interest rate if you're accepted by a lender. Generally, the better deals are reserved for people with very good credit histories.

Every time you apply for credit it gets marked on your credit file. This can have a negative impact on your credit score, particularly if you're refused credit. That's why using a soft search is useful. It'll give you an idea of which credit cards you're more likely to be accepted for, before you make an application.

Getting the most from your credit card

There are a few ways you can keep on top of any debts you have, and make sure your credit card is working hard for you:

  1. Pay it off

    If paid off promptly, cards can give you an interest free, short-term, flexible loan

  2. Find the right card

    Do you pay it off straight away or keep longer-term debt? Figuring this out will help you decide which is the best card for you

  3. Smart search

    A smart search will show you cards you’re likely to be accepted for before you apply, and won’t affect your credit rating

  4. Prioritise paying debt over saving

    The interest on debt is almost always more than the interest you'll earn on savings. Keep your debt manageable, and pay it off as often and as quickly as you can

  5. Transfer your debt

    Transfer existing debt over to a new card that charges either a very low interest rate, or gives you an interest-free period

  6. Cancel cards

    If you intend to stop using an old card, then make sure you cancel it and cut it up as soon as your debt is moved across or paid off

  7. Prioritise clearing expensive debts

    Look at which debts are costing the most interest and prioritise paying these off first

Frequently asked questions

  • Yes – if you don't pay off your debt in full each month you’ll have to pay interest. These can be very high and there's a danger that debt can get out of control. If you fail to make at least the minimum repayments there’ll also be default fees to pay and it could adversely affect your credit record.

    Using credit cards for cash withdrawals can be expensive as well – you'll be charged interest from the day you take out the money and will have to pay a fee for every withdrawal.

  • If you're struggling with repayments, speak to your lender as a first port of call. The lender won't want you to default on the debt and may find a way to help.

    You can also contact your local Citizens Advice Bureau, National Debtline, Money Advice Service or StepChange Debt Charity for advice.

  • APR stands for annual percentage rate and factors in the interest rate and other charges to calculate the cost of lending for products such as credit cards, loans and mortgages.

    Because it includes charges, APR can be a bit confusing – the interest rate of a product might be 14% per year, but the APR might be 17% because fees add the equivalent of another 3% per year.

    Don't assume that a card with a lower APR is better, as different card providers calculate interest in different ways and may apply other charges for lending, such as a balance transfer fee or early payment fee.

  • You could be rejected for a credit card if you’ve made too many applications, you already have too much debt or you have a bad or limited credit history.

    You can also be refused credit if the provider thinks you wouldn’t be able to make repayments, for example, because your income won’t cover it or you have late payment charges against you.

  • Paying more than the minimum fee is a good idea if you can afford to because you’ll pay the balance off quicker, and it’ll cost less as you’ll be charged less interest.

  • There are three main credit reference agencies – Experian, Equifax (ClearScore) and TransUnion (Credit Karma). The credit score scale varies by agency, but each offers a free service, so you can access your credit score and credit history online.

    If you want more than your basic credit report information, the credit reference agencies usually offer a more in-depth subscription service.

  • A few tips to improve your credit score are: 

    • Pay your bills and outstanding debts on time 
    • Correct any mistakes on your credit report – an incorrect previous address, for example 
    • Close accounts you don’t use 
    • Taking out a credit card can also help, as long as you use it responsibly

  • It completely depends on what you need from your credit card, whether you're using it to help clear debt or for your weekly purchases.

    But whatever you're using your credit card for, make sure you shop around for the best fit for your needs.

  • There’s no such thing as a joint credit card in the UK, but it's sometimes possible to add additional cardholders to your account. However, the additional cardholder has no liability to pay for any debt on the card.

  • No, your interest rate is typically linked to your credit rating and the lender's own criteria, so those with excellent credit ratings may be offered a better rate. If you have a poor credit rating you could struggle to get a credit card at all.

  • Having an established relationship with your bank could help you access to a good deal on a credit card, but never assume that loyalty pays – shop around for credit cards with our smart search.

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[1]Gocompare.com introduces customers to Runpath Regulated Services which is authorised and regulated by the Financial Conduct Authority. Gocompare.com's relationship with Runpath Regulated Services is limited to that of a business partnership, no common ownership or control rights exist between us. Please note, we cannot be held responsible for the content of external websites and by using the links stated to access these separate websites you will be subject to the terms of use applying to those sites

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