Credit cards enable you to borrow up to a maximum amount, known as a credit limit. Credit cards provide a flexible way to borrow money as and when you need it. In this guide, you’ll find out more about how credit cards work and the things you need to know before you get a card and when you’re using your card. Let’s start at the very beginning…
If you find credit cards quite daunting, you’re not alone. Many people still see credit cards as being complicated, surrounded by jargon and confusing terms. But when you strip away the jargon, they’re a lot simpler than you might think.
A credit card can be a great financial tool, giving you a flexible and secure way to pay and to help you manage your money. You can use a credit card to pay for things online and in shops and restaurants almost anywhere in the world. Every time you spend on your card, the amount you spend is added to your balance. You can pay your balance back in full whenever you wish or in regular instalments.
If you pay back what you borrow in full each month, you usually won’t pay any interest on your purchases, but if you carry forward a balance from month to month then your card provider will typically add interest to your balance, increasing the total that you have to repay.
A credit limit is the maximum amount you can borrow at any particular time using your credit card. Find out more about credit limits in our guide.
An interest-free period is a grace period during which you can pay the balance on your statement in full to avoid paying any interest. You can find out more about credit card payments in our guide.
At the end of each month you’ll get a statement, like you do with your bank account or with household bills. The main things you’ll find on your statement are:
You should check your statement when you get it each month to make sure all the details are accurate. If you spot something that doesn’t look right, get in touch with your card provider straight away.
Before applying for a credit card, it’s good to think about how you’re going to use it. There are a few key things to think about that can help you decide whether a credit card is right for you and which card to choose:
Failure to make payments on time or to stay within your credit limit means that you will pay additional charges and may make obtaining credit in the future more expensive and difficult.
Contributors
Vanessa Stewart
Vanessa is an editor at Aqua.
Victoria Smith
Victoria is an editor at Aqua.
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