A simple guide to credit cards
If you’re disciplined enough to always pay back what you borrow each month, a credit card is a safe, secure way to spend – but if you run up a bill and can’t pay it back, the high interest rates can get you into problem debt.
How does a credit card work?
A credit card lets you spend money on credit. You can spend up to a pre-set credit limit, which might be a few hundred or several thousands of pounds. It depends on how confident your card provider is that you will pay it back.
It is usually advisable to pay off the bill every month. If you do you won’t pay interest on what you have borrowed (except for cash withdrawals, where interest is usually charged on a daily basis from the day you take your cash).
If you don’t pay off any outstanding balance in full then interest will be charged. It’s usually backdated too, so if you bought something at the start of the month you’ll be charged a whole month’s interest.
Did you know?
Around 60% of people who have credit cards pay off the total balance each month.
Source: UK Cards Association
- Unless you are in a 0% or other introductory period, a credit card is usually only right for you if you’re sure you’ll pay off the amount you borrow each month.
- You will still need to make the minimum payment each month. Set up a Direct Debit for the full monthly outstanding balance, or at least the minimum amount to be paid from your bank account. This will help avoid unwanted charges and the loss of any introductory incentives.
- You will undergo a credit assessment by any potential card providers when you apply. A good credit rating will improve your chances of a successful credit application. It could also give you access to cards offering the lowest interest rates and/or promotional offers.
- You must be at least 18 to apply for a credit card. With some cards the minimum age is 21.