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Everything You Need to Know About Credit Cards – Explained

How do credit cards work and what are your options? We look at the pros and cons of using a credit card and the different types of credit cards here. If you’re considering your borrowing options, you need to read this before making any moves. 

Want to get a credit card but unsure about your choices? Don’t worry, we’re here to help.

Each month, over 170,000 people trust our guidance to make smart decisions about debt solutions. We understand your concerns about negative credit history and the worry of starting an expensive line of credit, which is why we’re here to give clear and simple advice about credit cards.

In this helpful article, we’ll explain:

  • What credit cards are and how they work.
  • The different types of credit cards.
  • How credit cards can be beneficial.
  • The potential downsides of having a credit card.
  • How to apply for a credit card and what to consider.

Our team has a lot of experience with credit cards. We’ve been in the same boat, so we know how confusing it can be and we’re here to make it easier for you.

Let’s find out more about credit cards and how to make the right choice for you.

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:

  1. Credit card debt consolidation
  2. The snowball method
  3. 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:

  1. Easy access to a revolving credit facility, especially when unexpected expenses arise
  2. If preferred, you will only have to make a minimum monthly repayment
  3. Responsible credit card lending can build your credit score for future borrowing, such as a mortgage application
  4. 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?

Some of the drawbacks of using a credit card are:

  1. Owning a credit card may incur different fees and charges, especially when purchasing products and services with some retailers
  2. Only making minimum monthly repayments will incur greater interest on purchases, making those purchases more expensive
  3. You are agreeing to a debt and if it isn’t repaid your credit report can be damaged. If you default on the credit card debt the issuer can take legal action against you, even resulting in a court order and materialising to the use of bailiffs. 

Am I eligible for a credit card?

To be eligible for a credit card in the UK, you need to be at least 18 years old and a permanent UK resident with a UK address. You might also need to prove a regular income that isn’t primarily from state benefits. 

If you’re eligible to apply, the credit card provider will assess your finances to ensure the credit card will be affordable for you. The issuer will also check your credit score to see how you’ve managed debts in the past. 

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?

The easiest credit cards to be approved for are those aimed at people with a poor credit card rating, which may be called bad credit credit cards or credit builder credit cards. However, these credit cards usually have lower credit limits and higher interest rates. 

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. 

Credit Card company reviews

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?

A credit card can be an ideal method of borrowing if you need to borrow money or want to improve your credit score. But it depends on your needs and preferences. 

If you’re unsure if it’s right or affordable for you, it’s worth speaking with a debt charity for advice and more information. 

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.