Compare credit-card features, understand repayments and check affordability before applying.
What are credit cards?
A credit card is a method of borrowing that allows the borrower to pay for goods and services using their credit card up to an approved credit card limit. The credit card can be used in shops and for online purchases.
Credit cards offer a type of borrowing known as revolving credit. This means you can pay back some of the debt but then borrow the money again (up until your credit card limit) – unless the credit card is cancelled by the issuer.
What are the different types of credit cards?
The majority of credit cards work in the same way but some credit cards may be used for specific benefits.
Some credit cards are known as reward credit cards because the borrower receives loyalty points when they make certain purchases. And there are travel credit cards which offer no or low fees for making purchases or ATM withdrawals abroad.
Another type of credit card is a credit builder card, which is aimed at people with a bad credit rating but want to improve their credit score through responsible borrowing. These cards usually have a low credit limit and higher interest rates. The borrower may use them because it’s their only option and/or as a way to build their credit score by meeting repayments.
Last but not least, balance transfer credit cards are used as a way to consolidate other credit card debt. If you already have credit card debt, you might be able to use a balance transfer credit card to transfer the balance on existing credit cards to the balance transfer card with a lower interest rate, which will allow you to save on repayments.
How can credit cards help?
Standard credit cards help people by providing them with a credit facility whenever they need it. It allows them to make purchases and cover unexpected monthly expenses.
Moreover, by repaying credit cards as directed in your credit agreement, it shows you’re a responsible borrower and can improve your credit score. This will make it easier to get approved for credit in the future.
As discussed above, there might be other benefits of using a credit card, such as saving money on fees abroad or collecting redeemable points with specific retailers.
How do you pay off credit cards?
Credit cards are paid off via monthly repayments. You will have to meet a minimum monthly repayment on the credit card, which will be based on how much money you have spent using the credit card and the interest rate applied.
The minimum monthly repayment will be at least 1% of the balance plus interest and any charges applicable.
Because credit cards offer revolving credit, there is no end date to when the credit card must be fully repaid. However, you might be asked to repay it in full by the credit card company with notice.
If you’re struggling to pay off a single or multiple credit cards, you might want to consider speaking with a debt charity to advise you on the best course of action. They may tell you that you’re suitable to use or apply for:
- Credit card debt consolidation
- The snowball method
- Debt solutions, such as a Debt Management Plan
What are the advantages of a credit card?
The benefits of using a credit card are generally:
- Easy access to a revolving credit facility, especially when unexpected expenses arise
- If preferred, you will only have to make a minimum monthly repayment
- Responsible credit card lending can build your credit score for future borrowing, such as a mortgage application
- There might be additional benefits of taking out the credit card, such as retailer loyalty points which can be redeemed for money off products and services
What are the disadvantages of a credit card?
Interest, cash-withdrawal charges, transfer fees, foreign-use costs or an annual fee may apply according to the product. Do not confuse provider charges with a retailer surcharge. Paying only the minimum can make borrowing expensive and slow to clear.
Missed payments can damage the credit record. Court action and enforcement may follow the required legal process; an ordinary missed payment does not itself authorise bailiffs. Borrow only where repayments remain affordable after essentials.
Am I eligible for a credit card?
Applicants must meet the provider’s age, residence, income and credit criteria. The source of income and benefit payments are assessed under each lender’s policy; there is no universal rule that income must not mainly come from benefits.
An eligibility checker may use a soft search, while a full application normally involves a hard credit search. Meeting basic criteria or having a high consumer score does not guarantee acceptance or a particular limit.
How do I apply for a credit card?
You can apply for most credit cards online via the bank or credit card lender’s website. The whole application process can usually be completed online. But you might have to upload evidence of identification, income or existing debts.
What are the top 5 major credit cards?
The top 5 credit card deals are subject to your circumstances and change. It’s impossible to say what the best 5 credit cards are because the best credit card for one person can be different for another person.
What credit cards are easiest to get?
Some products are designed for people with limited or adverse credit history, but no card is universally easy to obtain. They may have high interest and low limits. Use an eligibility checker and compare current terms before applying. Avoid repeated full applications or borrowing simply to chase a credit-score increase.
Which brand of credit card is best?
The best credit cards offer low-interest rates, sometimes with a 0% interest rate for an introductory period. Different brands will offer these types of credit cards, so there isn’t one single lender that’s the best.
Credit card company reviews
MoneyNerd has helped you learn more about the UK’s credit card companies. Read some of our credit card company reviews now to help you narrow your search for a lender.
How often should I pay my credit card?
You will at least need to make a monthly repayment on your credit card, but you could pay off some or all of your credit card more often and at any time.
What happens if I max out my credit card but pay in full?
If you use all of your credit card balance and then pay it off in full, you will be able to use the full credit card balance again. This is because credit cards offer revolving credit.
By paying off your credit card balance in full instead of simply paying off the minimum monthly repayment, you’ll also save on interest.
Is it better to pay your credit card in full or leave a balance?
It’s usually recommended to pay off the full credit card balance every month rather than just the minimum repayment.
How much balance should I keep on my credit card?
If possible, try to keep at least 70% of your available credit card balance available at all times. This is because keeping a 30% or less credit utilisation rate (how much credit you’ve used) can improve your credit score.
Having a low credit utilisation ratio shows that you’re not relying on your credit card as heavily, which is also an indication that you’re managing finances well.
What should you not use a credit card for?
Don’t use a credit card to meet monthly repayments on other debts without a sound strategy in place. And it’s not recommended to take out a credit card to fund gambling.
Should I apply for a credit card?
Consider whether you need to borrow and can afford the total cost. Paying on time can support a credit history, but taking out a card does not guarantee a higher score or future mortgage approval. If you are struggling with existing bills or repayments, seek free debt advice before taking on more credit.
If a credit card isn’t the right option for you…
If after reading this post you don’t think a credit card is what you need, there are many other ways to borrow money, including a range of personal loans. Discover other borrowing methods now by visiting our main borrowing page.