What is Credit Card
A credit card can be a easy way to pay for almost anything, from a new pair of shoes to a holiday in the
sun. But it’s important to remember that a credit card is a type of loan. When you spend on a credit
card you are essentially borrowing money – and if your debts get out of hand you could end up in big
• How credit cards work
• Borrow money for nothing
• Pay more than the minimum
• Beware penalty charges
• Don’t withdraw cash
• Card protection
• Shop around
How credit cards work
1. Credit Cards are issued after an account has been approved by the credit provider, after
which cardholders can use t to make purchase at merchants accepting that card.
2. When you apply for a credit card, you apply to borrow money from the card issuer,
usually a bank. The issuer will look at your credit history before it accepts your application
– and if you have a low credit score you could be refused credit.
3. If all is well, the bank will set a credit limit, which is the maximum amount you can spend
on the card. The card company will send you a statement every month, detailing the
transactions on the card, plus the amount owing. It should also give the minimum
payment and the payment due date.
Borrow money for nothing
1. Some credit cards charge zero interest for a limited period, but the standard rate is about
2. However, if you play your cards right, you need never pay a penny in interest. Most credit
cards come with an interest-free period of about 56 days.
3. In other words, as long as you clear the balance in full when you receive your monthly
statement, there is no interest to pay.
Pay more than the minimum
1. If you cannot afford to clear the outstanding balance you will start to accrue interest – and
the debt could quickly spiral out of control.
2. You must pay at least the minimum each month, but try to pay as much as you can
3. If you make only the minimum monthly payment, it could take many years to clear the
Beware penalty charges
1. Anyone who misses a payment or misses the payment deadline will normally have to pay
a penalty charge.
2. There is also a penalty if you exceed your credit limit. So it’s important to be in control of
your credit card and monitor your statements.
3. And if you are running into problems, contact the card issuer immediately.
Don’t withdraw cash
1. You can use your credit card to withdraw cash from an ATM, but it’s best to resist the
2. There is usually a fee for cash withdrawals and the rate of interest is typically higher than
the standard rate on the card.
3. Plus, there is usually no interest-free period, so the cash withdrawal will start to rack up
Some people prefer credit cards to cash as they can be more secure. If your card is lost or
stolen, you can simply report the incident to the bank and cancel the card. Most cards also
offer protection for any purchase over £100 and below £30,000.
For example, if you book a £2,000 holiday and the travel firm goes out of business, the card
company should cover the cost.
“Credit cards can be an easy and convenient way to pay for a whole range of goods
1. You don’t have to approach your own bank for a credit card; you can apply to any issuer
on the market. But the very best deals are usually reserved for customers with a perfect
2. It’s also worth bearing in mind that you might not be offered the advertised rate. The rules
state that only 51% of successful applicants must pay the advertised rate, which means
that almost half could be paying a much higher rate of interest.
3. Credit cards can be an easy and convenient way to pay for a whole range of goods and
services. They can also be a cheap way to borrow, if they are used correctly.