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Credit cards explained – a guide to how credit cards work

Credit cards explained – a guide to how credit cards work

Credit cards can be a convenient way to make purchases both on the high street and online. As long as you spend responsibly and can repay what you need to each month, credit cards can be a good way to spread the cost of purchases. Having a credit card with one provider can help you keep track of your spending.


What is a credit card?

Credit cards are a form of credit, letting you borrow money with the understanding that you’ll pay back what you owe over a period of time. They can make it easier to spread the cost of big purchases, as well as helping you manage your day-to-day spending.

Credit cards can also help you keep track of your spending. Choosing one credit provider can help you keep all the information about your spending in one place.

How do credit cards work?

With your credit card you’ll be able to make purchases both online and in-store. The process of paying by credit card is simple. Just like with a debit card, you can pay using contactless technology or Chip and PIN. The amount you spend will then be charged to your credit card.

Once a month you’ll receive a statement detailing the total amount of your purchases within that period, along with the minimum payment needed, and when it has to be paid by. Depending on your terms and conditions, you could also have to pay interest and fees.


Applying for a credit card

If you’re approved for a credit card, we’ll then calculate your APR – or Annual Percentage Rate – which is charged on top of the amount you owe, which can often follow a typical introductory or promotional period of 0%.

The APR is the interest rate on what you pay, plus any additional fees, over the course of a year. We’ll also provide details on the fees charged if you fall behind with your payments.

We’ll assign your credit limit, which is the maximum amount you can borrow with your credit card. Credit limits often differ between customers – in most cases, the better your credit rating, the higher the limit. Find out more about credit ratings and applying for credit.

If you want to increase your chances of accessing better offers and a higher credit limit, it might be worth looking at ways to boost your credit rating before you apply.


Paying off your credit card

Although you can pay back as much of your balance as you can afford every month, you have to pay at least the minimum amount.

You can pay off some or all of the outstanding balance above the minimum payment. Your minimum payment amount is 1% or 2.25% (depending on the terms of your agreement) before any charges, or £25, whichever is greater. This is the main difference between a credit card and other types of loan – you can choose how much you repay (as long as it’s the minimum amount or above), rather than agreeing to a fixed monthly payment over a particular time period.

There are a number of ways you can make payments, including Faster Payment and Direct Debit. Find out more about making payments to your credit card account.

Making regular payments is a sign of good financial behaviour. It’s something other providers will look at if you’re thinking about getting credit cards, a mortgage or taking out a loan in the future.


Should I get a credit card?

There are lots of advantages to having a credit card. As long as you’re able to repay what you borrow on the card, along with any fees and interest, you’ll be able to benefit from our products.

You’ll benefit from interest-free periods, so you don’t pay interest on purchases. You can also enjoy low rates on balance transfers if you’re thinking of switching to us from another provider.

Under Section 75 of the Consumer Credit Act, you’re protected if you make a large purchase and the goods you pay for are faulty or don’t arrive at all.

There are lots of good reasons to take out a credit card. As long as you can pay back what you owe, it gives you a flexible way to spread the cost of the things you purchase.