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Credit Card FAQs: Everything you want to know, but don’t know who to ask

Credit Card FAQs: Everything you want to know, but don’t know who to ask

6 min read

Credit cards can be confusing if you’re not clued up on them. From choosing the right card for you, to understanding the benefits and risks involved - credit cards can be a little confusing.

That’s why we’re here to demystify how credit cards work, share the things you should think about when applying, and answer some of the most common questions we hear. Ready? Let’s go.

How do credit cards work?

Credit cards are essentially a way to pay for things. But rather than spending your own money, you borrow it from a credit provider. You have to pay it back - either in full each month, or at least the monthly minimum payment. It’s recommended to pay off your balance in full if you can, as you may be charged interest on anything you still owe.

You can use a credit card for everyday purchases, like your weekly food shop or filling your car up with fuel. You can also use one for larger purchases, like a holiday, to spread your spending.

There are several different types of credit card available. Here are a few you might see advertised:

  • Credit builder cards. If you’re new to credit, or if you’ve had problems with credit in the past, you might have a bad (or low) credit score. A Credit Builder card can help you to build your credit score over time. They typically start with a low credit limit, which could increase if you show you can use the card responsibly.

  • Balance transfer cards. A balance transfer is when you move a balance from one card to another. A balance transfer card can help by letting you combine your balances from multiple cards into one place, or help you save money on interest if the rate on your new card is lower.

  • 0% purchase cards. Some cards come with a 0% interest period when you take them out. This means you won’t be charged any interest on purchases you make during that time. When the offer expires, you’ll start to pay interest at your usual rate.

  • Reward cards. These types of cards offer some kind of reward when you spend on them. It might be cashback (where you get a small percentage of the purchase amount back) or other perks, like air miles.

If you’re thinking about applying for a credit card, check if you’ll be acceptedopens in a new tab first with an eligibility checker.

What are the benefits of using a credit card?

When used in the right way, credit cards can be really helpful.

  1. Spread the cost of purchases Lots of people use them to spread the cost of larger purchases, like a holiday, or a new washing machine.

  2. Building your credit score Using a credit could also help you improve your credit score over time. As long as you keep up with your payments and don’t go over your credit limit, your score should improve. This is because it shows lenders that you can use credit responsibly and will pay back on time.

  3. Extra funds when you need it Credit cards can also come in handy if you find yourself in a pinch. Boiler broken down unexpectedly and don’t have enough money for the repair? A credit card lets you cover the cost up front and spread the cost over time.

Will a credit card affect my credit score?

When you apply for a credit card, the lender will run a hard check on your credit history. These types of searches will impact your score, so it’s important to use an eligibility checker like QuickCheckopens in a new tab.

If you use your credit card responsibly, your credit score should improve over time. Just remember, it’s important to keep up to date with payments. Late payments will be marked on your credit report, which could end up having a negative impact on your overall score. And repeated late payments could result in a default on your account, which stays on your credit file for six years.

How do credit payments work?

Each month you’ll receive a statement summarising the purchases you’ve made and what you owe. You can usually either pay your full balance back, a minimum payment (which your lender will decide), or an amount you choose (as long as it’s above the minimum amount).

If you can pay back your full balance each month, great! You won’t be charged any interest, so you won’t end up owing more than you borrowed. Even if you can afford to pay more than the minimum each month, just by a little bit, you’ll reduce the amount of interest you’re charged over time

Setting up a monthly Direct Debit is a good way to stay on top of payments and make sure you don’t forget. You can usually make one-off payments online or over the phone too.

Does a credit card protect me online?

Using a credit card can make for safer shopping online, as you’ve got some added protection. Under Section 75 of the Consumer Credit Act, you may be protected on purchases from £100 up to £30,000. So if a transaction ends up being not quite what it seemed, you’re not left in the lurch.

Your credit card card company is legally obligated to help you get your money back if goods don’t arrive or aren’t in the condition you expected. It can even cover associated costs.

What’s the main difference between a debit and credit card?

They might look similar in appearance, but credit and debit cards work very differently.

A debit card is linked to your bank or building society, so when you use it to pay for something, the money comes directly out of your account. A credit card, on the other hand, lets you borrow the money from a credit provider on the promise that you’ll pay them back.

A credit card can also help to build your credit score, whereas using a debit card won’t have any impact on your credit score.

Sometimes it’s better to use one type of card over the other, depending on the situation. For example, if you need to withdraw cash in the UK, it’s usually free with a debit card - but most credit cards will charge a fee.

But if you’re spending a large amount up front (on something like a holiday or home improvements), then a credit card might be better so you can spread the cost and benefit from extra protection.