What you need to know about credit cards

Never had a credit card before, or just not sure you understand them? Then they can seem confusing. Used properly, credit cards can give you the opportunity to build (or rebuild) your credit rating, provide you with free protection and 0% interest rate deals do offer the cheapest method to borrow money.

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What is a credit card?

A credit card is a method of payment.

Unlike a debit card it is not linked to funds available within your bank account. A credit card provides you with access to a limited source of credit when making purchases and at the end of the month you are provided with a bill.

Clearing your credit card balance in full every month will mean you pay no interest on the purchases made. You can choose to make smaller repayments each month, however, depending on the deal you have with your credit card this could mean paying interest on your balance.

What do you need to know about credit cards?

There are a number of things you need to know about credit cards if you’ve not applied for one before.

1. Credit cards aren’t just given away

You have to apply for a credit card and as part of that application you’ll have to pass a credit check.

A credit check will inform a lender how risky it is to lend to you. Things such as your income and other financial commitments will be considered when you’re applying for a credit card and the result of a credit check is an accept or a decline - there is no grey area.

Different lenders have different lending criteria, which means just because you were accepted or declined by one lender doesn’t mean you’ll get the same result when applying for credit from a different lender.

However, it’s worth noting that every time you apply for credit, it’s recorded on your credit profile. Too many applications for credit can decrease your credit worthiness.

Luckily, Monva can provide you with an eligibility rating when reviewing your credit card search results. This eligibility rating (link to eligibility article) gives you an indication of the likelihood you’ll be accepted for the product, and eligibility ratings (link to eligibility article) are provided through a soft credit search so they don’t harm your credit rating.

2. Your credit card will come with a credit limit.

A credit card does not give you access to unlimited funds, you will have an agreed credit limit.

A credit limit is the maximum amount you can borrow through your credit card at any one time. Your limit will be set by your lender and you usually won’t know what your credit limit is until you’ve been approved. The credit limit you’re given is dependent on the outcome of your credit check.

Your credit limit isn’t necessarily set in stone. You can request for it to be decreased and in some cases request an increase. Your lender may also automatically increase the credit limit on your credit card, but you can choose to decline.

3. Your credit card will have a minimum repayment amount.

As previously mentioned, each month your credit card provider will send you your bill. This bill will detail the current balance on your credit card, your available credit, your purchases, and your minimum payment.

Most lenders do waive the interest on purchases if you clear your balance on time and in full by the date it’s due. However, cash withdrawals on credit cards typically will incur interest from day one.

Paying your balance in full every month may not always be possible, that’s where the minimum payment amount becomes important. Failure to pay the minimum amount stated on your billing statement will usually result in a fee and as it’s marked as a missed payment it will leave a negative mark on your credit profile that can last up to 6 years.

To protect yourself, it’s best practice to set up a monthly direct debit for at least the minimum amount. You can set it higher or for the full amount if you have the means.

It’s also important to be proactive. If you know you’ll be unable to make a payment on your credit card, it’s important to contact your lender and work with them to agree a repayment plan.

4. Interest may be charged if you haven’t cleared the full balance.

Depending on the deal you’ve gotten for your credit card the interest you’ll pay will differ, and it may also be different depending on the type of transaction.

For purchases made with a credit card, you may find you’re charged interest if you don’t clear your balance in full every month.

Typically, the interest charged will also be based on your full statement balance and from the date the purchases were made. Meaning, if you’d made a purchase for the value of £350 and you’d previously repaid £300, you would still be charged interest on the full purchase value (£350) until the amount was cleared.

Whereas, cash withdrawals are typically treated differently. The interest you pay on withdrawals is typically higher than purchases and you’ll start paying it immediately. You’ll also find that most credit card providers charge a fee for withdrawals.

When applying for a credit card, it’s important you understand the APR (link to APR article) of the card, as well as non compulsory charges that may be applied to your account (such as payment protection).

Interest rates may differ between transaction types too. For example, for purchases you may have an interest rate of 19.9% but for cash withdrawals it may be 23.9%. If you do have different interest rates on the same credit card for different activities, your repayments will go toward clearing the most expensive debt on your bill first. This is referred to as ‘allocation of payments’.

5. How you manage your credit card will affect your credit profile.

Your credit report contains a whole host of different information. Included in it is certain credit card activity, including the number of credit cards you have, your credit limit(s), whether or not you’ve made cash withdrawals on your card(s) and the amount owed (this isn’t a live feed, so it’ll show the amount provided when your credit card provider last sent an update to the credit reference agency).

Your credit profile will also show your repayment history. Meaning paying on time (or before the due date) and paying the minimum amount (or more), will usually have a positive effect on your score.

This also means that any missed payments, going over your credit limit or frequently withdrawing cash using your credit card will also appear on your credit profile. Typically, this will have a negative effect on your credit score as you’ll be seen as risky to lend to. Also keep in mind that any missed payments will remain on your credit profile for up to six years.

The pros and cons of credit cards

People’s opinions towards credit cards differ significantly. Some people find them a very convenient, safe and helpful way to lend money, while others see them as a trap forcing them into debt.

However, with overdrafts today coming with 40% APR, debit cards are often more costly methods of borrowing than your average credit card.

It really comes down to personal preference and your attitude toward money. If you don’t believe you can trust yourself to use a credit card responsibly then arguably it’s not the method of lending for you.

If you’re unsure still whether or not a credit card is for you we have some simple pros and cons to help you decide:


  • Cheaper borrowing or rewards.

    The benefits of a credit card differs from card to card. But 0% purchase cards and reward cards have specific benefits.

    A 0% purchases credit card means for the promotional period you’ll pay no interest on your balance. Whereas a rewards credit card will give cashback on purchases or reward points. This means you can make or save money each time you use the card, and if you pay the balance in full every month you won’t be charged interest.

  • Extra protection of purchases.

    Purchases made using a credit card can offer you extract protection on top of your statutory rights. Buying anything on a credit that costs between £100 and £30,000 (even if you only use 1p of credit toward the purchase) means the purchase is protected by Section 75 of the Consumer Credit Act 1974. This means that your lender (the credit card provider) is jointly liable with the retailer for the whole amount if something goes wrong.

  • Can help boost your credit score.

    Effectively managing your credit card can improve your credit score. By staying within your credit limit, paying on time and paying at least the minimum amount each month give positive evidence to lenders that you are able to effectively manage your finances. Meaning ultimately, you pose less risk to the lender. This should mean you’re offered better rates or you're more likely to be accepted for other products.


  1. If you don’t trust yourself to not spend more than you can to afford to repay, then you could put yourself in a tight financial position by taking out a credit card.

  2. While you must pay at least the minimum amount stated on your credit card statement, always doing so can mean the interest can build up. You have to make sure you have a play for paying back your balance, or the interest amounting can soon see your debt at an amount you’re unable to afford.

  3. If you don’t effectively manage your card (making payments on time and for at least the minimum amount) you can harm your credit score. Meaning you may be deemed as risky to lend to in the future and this can make it harder for you to secure other types of lending such as mortgage, car finance, loans or another credit card. The damage done can also remain on your credit profile for up to 6 years.

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Tags: Credit Cards