Credit knowledge

When you borrow money whether it's on a credit card or a loan you will probably need to pay interest on that amount. A credit provider will determine your interest rate based on your credit score and that interest rate will be applied to the amount you've borrowed. Interest is calculated as a percentage on the amount you borrow so the longer it takes for you to pay off the amount, the more interest you will end up paying.

The interest rate for credit cards can differ depending on how you use your card, so you may have different rates of interest for purchases, balance transfers and cash withdrawals.

Most credit card providers will wait up to 56 days before charging you interest on purchases, paying off your balance in full each month for at least two consecutive months could help you avoid paying any purchase interest.

This is the rate applied to all purchases you make on your card such as, petrol, new shoes and holidays.

The balance transfer rate is applicable to any debts you may have transferred to your credit card from other credit or store cards.

When you use your credit card to withdraw cash at an ATM you will incur a cash withdrawal fee. This will be added to the amount you withdraw and it will be subject to your agreed rate of interest. Interest on cash withdrawals and cash transactions is calculated daily, so it's a good idea to only withdraw cash in emergencies. Some transactions you make on your credit card are also considered as cash withdrawals, where a fee will be charged, and these include transactions such as for gambling websites or when buying foreign currency at a currency exchange.

Credit providers will advertise their products using their APR (Annual Percentage Rate of charge).

The APR makes it easy to compare different credit products before deciding which one is best for you. For credit cards the APR is based on the purchase interest rate and includes things like annual fees, although cash withdrawal charges and default fees are not included.

It won't tell you exactly how much you'll end up paying back but it will help you compare credit card deals to find out which one is best for you, and which ones you can afford.

Your credit score will be created by the credit providers from the information you have given in your application, what's in your credit report, and your credit rating. The provider will use this credit score to decide whether you qualify for credit, what your credit limit could be and the interest rate.

Learn how to improve your credit score.

A credit rating is a record of how well you've managed your finances in the past. Things like missing a credit card payment or defaulting on a bill can damage your credit rating. This is known as having bad credit, which can make it harder to borrow money – whether that's a store credit card, a loan or a mortgage.

Credit companies want to know who they are lending their money to, so when it comes to applying for credit several things are taken into account.

First, they will assess your credit rating and your credit report, which is taken from the credit reference agencies. This assessment helps them create what's called a credit score.

When applying for credit, you want to have your credit history in the healthiest state possible. If you have bad credit, find out more about how to improve your credit rating with credit cards for bad credit such as the Capital One Classic Credit Card. Being turned down for a credit card may damage your credit rating. Safely check if you could be eligible for a Capital One credit card using our QuickCheck tool. This checks your eligibility across all of our cards without damaging your credit rating.

Your credit history is held by credit reference agencies and is one part of your credit report. Basically, credit history is exactly that, how you have managed your finances in the past, including credit cards, loans or a mobile phone contract.

Your credit rating is a score based on your credit report created by the credit reference agencies. It takes all of your credit history and applies an overall score to it based on how you have managed your finances in the past, giving you a good general indication of how lenders are likely to view your application. It also looks at non-financial information such as court orders i.e. CCJ's, and whether you are on the Electoral Roll.

Find out how you can improve your credit rating.

The financial information held about you at the credit reference agencies can help you do many things, such as taking out a loan, applying for a mortgage or even getting a mobile phone. Most companies that provide credit take your previous credit history into account. If you have a bad credit rating, this may impact future applications for a credit card.

Credit reference agencies are companies that collect information about you, for example information from the electoral roll, what credit card and store cards you have, your mobile phone contract suppliers, mortgage information - essentially anything financial. They also monitor how well you have paid these providers.

The credit reference agencies then sell this information to credit providers as credit reports.

Credit reports help credit providers to rate your suitability for products and decide whether to accept your application.

You can see a copy of your credit report by contacting one of the 3 independent credit reference agencies: