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Credit cards can provide you with a convenient and flexible solution for borrowing money - providing you with a way to buy goods and services and pay for them later.
When you take out a credit card, you’ll be given a credit limit - this is the maximum amount that you’re allowed to spend using the card.
If you pay off your monthly balance in full you won’t be charged any interest. But if you only pay part of what you owe, the remaining amount is carried over to the next month and you’ll be charged interest on the whole balance.
There will also be a minimum amount that you will need to pay off each month, if you don’t clear the entire balance.
There’s a range of different types of credit cards available which are designed to suit different needs and purposes.
The most popular types include:
Earn rewards or cashback each time you use your card. You can build up points to redeem at your favourite stores or get paid back a percentage of the money you spend onto your account, allowing you to earn money as you spend.
These cards offer interest-free periods on purchases for a set period, which can run from a few months to longer than a year. 0% purchase cards are designed to be used for shopping and big purchases, as they allow you to spread out the cost of your spending.
Find out more about interest-free credit cards.
Balance transfer cards offer a 0% interest period on sums that have been transferred onto the card. These are a useful option if you have a large outstanding balance on an existing card, and want to pay it off in stages without incurring any interest, meaning you can clear the balance more cheaply. You will usually need to pay a transfer fee which is calculated as a percentage of the sum being transferred.
With a money transfer card you can move money from the card into your bank account, perhaps to get you out of your overdraft. You then have a set period of 0% interest, allowing you to clear the balance in manageable stages. As with balance transfer cards, you will need to pay a transfer fee which is worked out based on how much you are moving from the card into your bank account.
Also, the full balance would need to be cleared before the 0% interest period ends, otherwise you will pay interest on the remaining balance.
These cards allow you to earn travel perks and rewards like air miles and Avios points on your spending, as well as benefit from discounted travel-related services and flights. These cards often come with a high annual fee and minimum spend amounts, so they’re not right for everyone.
Making purchases on your card when you’re abroad can incur hefty fees. Travel credit cards can make it cheaper and more convenient for you to spend when you’re away as they don’t charge fees on purchases.
If you have a low or poor credit history, these cards can help you build your credit score. Paying the monthly repayment in full and on time each month will show lenders you’re reliable and help you access better credit options in the future.
Different credit cards are designed for different needs, so which card is best will depend on what you want to achieve and what you plan to use the card for.
You can use a balance transfer credit card to consolidate your debts onto one card with a low or no-interest period which can help you clear the balance more quickly.
If you’re planning to buy something expensive, a 0% credit card can help you spread the cost out over several months without needing to pay interest.
Whereas if you’re able to pay off your balance in full every month, you can actually save money by using a reward card to earn loyalty points, air miles or cashback as you spend.
It's also worth reviewing all of your options before using a credit card to purchase something. For example, saving up could be a better option.
Ultimately, you’ll need to consider what your goal is and what you can afford to pay back. Then you can compare different credit card providers to find the best deal for you.
Some of the benefits of using a credit card include:
You could be covered by buyer protection on card purchases between £100 and £30,000, which can help you claim your money back if there’s a problem
There are plenty of credit cards available that will earn you rewards, travel perks and cashback as you spend. These accounts usually come with a monthly fee and high interest rates so you would need to ensure you repay the balance in full every month. If not paid in full, the interest payments could outweigh the benefit of cashback.
Using your credit card in the right way can help you build a positive credit history and increase your future chances of accessing better credit deals
There are plenty of cards available that offer 0% interest for balance transfers and provide interest-free periods for new purchases
There are plenty of options to choose from, but it’s important you find the right card for your needs.
Your name, date of birth and email address
Tell us whether you’re a homeowner and how long you’ve lived at your address
We’ll need to know your employment status and annual income
A poor credit score can make it much harder for you to be accepted for a credit card.
However, all is not lost, as some providers offer credit builder cards that have been designed for exactly this situation.
Using a credit-building card can help to show that you’re able to make regular repayments and rebuild your credit score.
To boost your credit rating, you’ll need to pay off your balance in full, stay well within your credit limit and not build up a large amount of debt.
While credit cards can offer great flexibility and benefits, there are some drawbacks you’ll need to consider before you take out a card.
The disadvantages include:
A credit card can create the temptation to overspend, with you buying more than you can afford to pay off and needing to pay interest on top of this
Missed repayments, going over your credit limit, and having ongoing debt can all negatively affect your credit rating
Credit card rates vary, but once any interest-free period ends you could end up being stung with a high rate, making your debt much harder to clear
From annual fees to late payment charges, you’ll need to consider whether a credit card is worth the extra costs you might need to pay
Using your card to take out money will incur a high rate of interest straight away, even if you’re still in an interest-free period
When you use an eligibility checker it uses what’s called a soft search on your credit history.
This means it doesn’t leave a trace on your credit report that lenders will be able to see, even if the check shows you’re unlikely to be approved for certain cards.
When you make an application for a credit card, lenders will do an in-depth inspection of your credit report to understand your financial behaviour - this is called a hard credit check.
Each hard check is recorded on your credit report, so if you make several credit card applications within a short amount of time, this could signal to lenders that you’re struggling to manage your finances. This can then dent your chances of being accepted.
This will depend on several factors including your age, income, financial situation and your credit score.
You’ll usually need to be over 18 to qualify and meet income requirements.
And lenders will also use your credit history and score to decide whether your application is approved.
Be aware that every application you make is logged on your credit report and if lenders see you’ve applied for several cards in a short timeframe this can raise a red flag.
To avoid this, it’s best to use an eligibility checker first - this will tell you which cards you’re most likely to be accepted for without affecting your credit rating.
Credit cards are a flexible and convenient way to manage your spending, and you can maximise the benefits by using them in the right way:
By using your card responsibly and making your payments on time and in full, you can boost your credit score.
Make the most of 0% balance transfer offers and move your debts onto one card with a much lower interest rate to help you clear them more quickly.
A direct debit can make sure you never fall behind with payments and risk losing the benefits that credit cards offer.
It’s really important that you make at least the minimum payment each month. If you don’t then you will face an additional charge from the card provider.
More seriously a black mark will be added to your credit record. This will remain on your record for six years, and may impact your chances of getting credit in future.
You should contact your lender as soon as possible, they may be able to come up with a payment plan to help you get back on track.
You’ll need to work out what you can afford to pay. If you can afford it, you should pay at least the minimum required amount.
If there’s a temporary problem with your finances - for example, you’ve lost your job - the credit card company may let you pause your payments until you’re back in employment. Interest will still be charged at the normal rate and will need to be paid when you resume your payments.
If you’re struggling with money, you can access free debt help backed by the government and from debt help charities. You can get impartial expert advice from a trained debt adviser who will work with you to find a solution.
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Page last reviewed: 14 September 2023
Page reviewed by John Fitzsimons
[1]Gocompare.com introduces customers to Experian Limited, which is authorised and regulated by the Financial Conduct Authority. Gocompare.com’s relationship with Experian Limited 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