How credit cards work

Making the most of your finances and getting help to reach your goals is easier when you understand how credit cards work.

Choose the right credit card for you

Your choice of card will depend on your goals. Do you want to make a big purchase? Are you looking to get cashback when you pay your bills? Or do you want to consolidate your credit card balances? When you're shopping around, compare the annual percentage rate (APR) offered by different cards, as well as all the other credit card details.

Use the interest-free period wisely

Many cards offer an interest-free period on purchases. Provided you pay what you owe before the due date, you won't have to pay any interest at all - giving you plenty of extra spending flexibility. Interest-free periods vary in length, so you can look for the one that meets your needs. Remember that you must make the minimum payment each month on time.
Woman paying by card

Organise your payments

If you're very busy, it's easy to accidentally miss a credit card payment. However, this can lead to late payment fees, as well as damaging your credit rating. To make sure your payments are always made on time, set up a Direct Debit to your credit card company or bank.

Set the right credit card limit

You should be comfortable with the amount you spend on your credit card. To make sure this is the case, your credit limit should be set at the right level for you. If you need a little extra flexibility, and you know you can afford it, you can always ask your lender to increase your limit. On the other hand, if you're worried about being tempted to overspend, you can ask for it to be reduced.

Pay more than the minimum

To enjoy using your card without having to pay interest, pay off your balance in full, every month. If you can't do this, it still makes sense to pay more than the minimum in order to reduce the interest you'll pay.

Let your card protect you

Knowing how credit cards work can pay off. Using a credit card for purchases of over £100 (and under £30,000) can offer you protection under Section 75 of the Consumer Credit Act if something goes wrong with the purchase - for example, if the company goes bust before delivering your goods.

Look for rewards

Many credit cards offer rewards such as cashback, air miles or points that can be redeemed in stores. There are lots of different offers available, so you can shop around and check credit card details to find the offer that fits in with your lifestyle and your goals.

Make the most of balance transfers

Balance transfer cards can be a good solution if you're looking for breathing space to pay off your credit card bills. To get the best deal, make sure you understand the balance transfer fee you will pay, and the length of the interest-free period.
Did you know...? Credit cards were invented in the US in 1949, but the first ones weren't plastic - they were made of cardboard.