Why get a credit card?
A credit card allows you to borrow money for spending, up to a pre-set limit. The credit limit is set when you open your account, but you can apply to change it.
Credit cards usually have an interest-free period of up to 56 days from the moment of purchase, and a minimum payment due on a specific day of the month. If you can pay off your balance each month in full, you won’t have to pay any interest. If not, then interest will usually be charged at the stated APR (Annual Percentage Rate) unless the card has a 0% purchase or balance transfer promotional offer.
Always remember that using a credit card means you’re using borrowed money. The money isn't yours to start with, so it’s not like using a debit card. You’ll have to pay the credit card off at some point – and if you fall behind with your repayments, the overall amount you owe could keep increasing.
Will credit cards improve my credit score?
Firstly, it’s useful to know that you have more than one credit score. Lenders and credit reference agencies all have different ways of working out your score, and may take into account different information. Your credit score indicates how well you manage your finances, and it helps credit providers decide whether to approve you and what rates to offer you.
Managing a credit card responsibly – such as by making payments on time – can often improve your score, as it can show lenders you’re a sensible borrower. What’s more, some lenders may like to see that you’ve been approved for a credit card before, as it can indicate that other lenders trust you to repay them.
But remember, credit limits are there for a reason, and too many credit cards with high limits could make lenders think you’re overly reliant on borrowed money. So, try if you can to keep the credit balance you owe across all your credit accounts (not including mortgages) below 25% of the total limit – the lower the better.
You can get a good idea of how lenders may see you by checking your Experian Credit Score – it’s free and the UK’s most trusted credit rating*.
When will my credit card improve my credit score?
Typically, the more mature your credit card accounts, the more they’ll help your score. A new account is likely to start improving your credit rating after three months – assuming you’ve kept up with the repayments and managed other credit well. Credit builder cards are specifically designed to improve your score – and you can compare them for free with Experian, without impacting your credit rating. Remember, we’re a credit broker, not a lender†, meaning we can help you find deals, but we don’t provide credit or decide whether to approve you.
Does paying only the minimum affect my credit score?
It depends. If the minimum payment covers all or most of your monthly balance, then it’s unlikely your score will be affected. However, if you’ve used a large proportion of your credit card limit, and you’re consistently making only the minimum repayment, lenders may believe you’re struggling to repay the debt.
Of course, it’s crucial that you make at least the minimum payment in full and on time – a missed or late payments could mean extra fees, a mark on your credit report that other lenders can see, a negative impact on your score, and even sometimes a default or CCJ (County Court Judgment).
What can and can’t you use a credit card for?
In most situations, you can use a credit card as a normal form of payment. Companies and shops can no longer charge you for choosing to pay with a card – although they can still add booking or admin fees, as long as these apply to other forms of payment too. Some businesses, such as street stalls or sole traders, may not accept credit cards at all, or only if your purchase costs above a certain amount.
Is it safer to shop online with a credit card?
It’s usually a lot safer to buy things online with your credit card, rather than a debit card. If things go wrong – e.g. you become a victim or fraud, or there’s a dispute over your purchase – you’ll have extra protection if you used a credit card. However, you should still be cautious when spending money online – here are our top tips for keeping your card safe:
- Use websites you know and trust, and beware of ‘phishing’ sites that imitate a genuine site
- Check that there’s a padlock symbol next to the address bar, and that the website address starts with ‘https’, not ‘http’.
- Hover over links before clicking, to check what you’re about to visit
- Don’t click links in emails that look suspicious – e.g. look out for spelling errors and generic greetings like ‘dear customer’
Can you pay bills with a credit card?
Generally speaking, you can pay council tax, gas, electricity and water bills, and even tax bills to HMRC by credit card. It may be possible to use a credit card for your mortgage and rent payments, but it’s uncommon and you may run the risk of getting into more debt.
Can you use a credit card to pay into a bank account?
Money Transfer credit cards enable the user to pay directly into their own bank account, and some give you lengthy 0% interest-free periods much like a balance transfer card does. It could potentially also help you pay off an overdraft.
Can you use a credit card to get cash?
Withdrawing cash on your credit card can be expensive. Firstly, interest is charged daily from the moment you take it out, as opposed to the 56 days interest-free period for purchases, and secondly you may be charged a fee for the withdrawal.
And it’s not just taking cash from the ATM – buying foreign currency on your credit card may also count as getting cash.
Using credit cards abroad
Travel credit cards are designed for overseas use, and their benefits often include:
- No charge for cash withdrawal abroad
- No fees when you use it for purchases overseas
- Good foreign exchange rates
- Purchase protection if you use them abroad
However, they usually come with high APRs, so paying them off in full as soon as the statement arrives is important if you can.
Applying for a credit card
Before you apply for a credit card, think carefully about what you can afford and why you want one – is it to spread the cost of a large purchase, to build up your credit history, or just for the weekly shop?
It’s a good idea to minimise the number of credit card applications you make, and space them out over a several months or more. This is because each time you apply, a hard search is recorded on your credit report. Lenders can see these, and too many can cause alarm bells to ring – they may believe you’re in financial difficult, or even see it as a sign of fraud.
You can keep the number of applications you need to make down by only applying for cards you’re eligible for. You can see your eligibility rating when you compare cards with us – and don’t worry, comparing only leaves a soft search on your credit report, so it won’t affect your credit score.Compare credit cards with Experian