Credit Cards Explained
If you know how to use a credit card and make it work for you, then it can be a great thing to have as part of your financial portfolio.
However, it’s important to be aware of the pros and cons of having a credit card, as well as know about things such as credit card protection, how to use a credit card and what credit card you should get, if you choose to get one.
Take a look at our extensive guide to credit cards below for more information.
How do credit cards work?
A credit card works by allowing you to spend money on credit. It acts almost like a loan where you can spend up to the agreed credit card limit.
Of course, like with any type of loan, the money you “borrow” on your credit card isn’t free and will have to be paid back, usually every month, so it’s a good idea to get a credit card only if you’re in a good financial position and you know that you’ll be able to afford to pay it off.
If you’re consistent with your credit card payments and ensure that you’ve paid everything off every month, you won’t suffer from high-interest rates and will instead enjoy seeing your credit score increase as a result of you showing that you’re able to pay off any debts you have.
Is it worth getting a credit card?
It can be worth getting a credit card if you’re looking to improve your credit rating, providing that you’re able to pay off the balance every month.
However, credit cards should be treated with respect and not seen as a way of getting “free” money. While they do enable you to spend money that isn’t technically yours, they are also intended as a means of spending money with the intention to pay off the balance every month so that you don’t rack up credit card debt and negatively affect your credit score.
It’s only worth getting a credit card if you know that you’ll be able to pay it off without the worry of not being able to afford the payments and thus suffering from high-interest rates when it comes to paying it off.
How old do you have to be to get a credit card?
Your credit card eligibility will be dependent on numerous different factors, including your age. In the UK (and many other countries for that matter), you have to be 18 years old in order to be eligible for a credit card.
What do I need to get a credit card?
There are numerous things you will need to provide your credit card supplier with when applying for a credit card with them, these include (but are not limited to):
- A form of ID (usually your passport or driving licence)
- Current bank details
- A copy of one or more of your latest payslips to show how much you earn
- Your contact details such as your name and address
- Previous addresses (usually from the last three years)
- Where you work and a few details about your job
- A good credit score (otherwise, you may need to opt for a credit builder card or be faced with higher interest rates)
Types of credit cards
There are many types of credit cards available for you to choose from, take a look at our list below of some of the most common ones, such as a money transfer credit card which can be used to transfer money from a credit card to a bank account.
Balance transfer card
Rewards credit card
Student credit card
Travel credit cards
Money transfer cards
Business credit cards
Limited purpose cards
As you can see, there are many different kinds of credit cards available and this list is non-exhaustive, so there may be a few more to dive into as well!
Learn more: The Types of Credit Cards in the UK
How to pay off a credit card
There are several ways that you can pay off your credit card - here are some of our top recommendations on how to pay off a credit card.
- Set a budget so that you only have a set amount of money that you can spend each week/month, helping you limit your spending and pay off your credit card quicker.
- Prioritise your debts and pay back any urgent loans as soon as possible.
- Opt for a low-interest credit card.
- Pay off as much debt as and when you can - if you just stick to the minimum repayment amount that your credit card advises, you will be subject to paying interest on the rest of the money owed.
How to cancel a credit card
Before you cancel a credit card, you need to try and ensure that you’ve paid off any outstanding debt on the card; make sure that the amount on your card is zero before cancelling.
You will likely have to call your credit card provider to confirm your cancellation, but you may also be able to send a letter or email confirming that you want to cancel.
Once you’ve taken these steps, keep an eye out in the mail for any further correspondence that you might receive from your credit card company in case you do have any outstanding bills to pay or for confirmation of your account closure.
What is APR on a credit card?
APR, or Annual Percentage Rate is the interest rate that you pay on a credit card as a yearly rate.
There is no one universal APR across all credit cards, but you can expect the average credit card to usually charge between 18% and 19%. A good credit card APR would be 14% or lower.
How to choose a credit card
Below you’ll find some of the things you’ll need to consider when it comes to choosing a credit card.
- Think about what you want to use your card for - travel, improve your credit rating, earn rewards etc
- Look into the interest rate of the card
- Do your research - don’t just settle for the first credit card you come across
- Take a look at the rewards and benefits it might offer
- Figure out if you’re eligible for the card you want (one step is checking your credit score)