How do credit cards work?



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…

 

What is a credit card?

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.

 

What's a credit limit?

 

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.

 

What does 'interest-free period' mean?

 

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.

 

Credit card statements

 

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:

 

  • Details of everything you’ve spent on your card since your last statement
  • Details of interest and other charges added to the account
  • The total amount due (the balance)
  • The minimum amount you need to pay that month
  • The date by which you need to pay the minimum amount
  • How you can make payments

 

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.

 

What are the main advantages of a credit card?

 

  • Spread the cost of purchases – If you won’t have enough money for a purchase until next payday or you need to spread the cost of a big purchase, like a new laptop or washing machine, a credit card can give you some flexibility. A credit card also means that…
  • You’re ready for emergencies – If something unexpected happens, like the boiler breaking, you can use your credit card to help with any costs and spread the payments in a way that suits you better.
  • It’s safer than cash – If your card is lost or stolen, you can just call and cancel it. Plus, with credit cards you’re protected for purchases of goods or services costing over £100 (and no more than £30,000) under Section 75 of the Consumer Credit Act. This means you could get a refund if something goes wrong, like a company going out of business or the goods you bought not working.
  • Build your credit rating – Having no credit history makes it more difficult for lenders to work out how well you can manage money. Equally, a poor credit rating can limit your options and make it harder for you to get the best deals. A credit card is a great way to build or rebuild your credit rating, by making your payments on time and staying within your credit limit.
  • Other benefits – Some credit cards provide other benefits such as cashback, rewards points, or other cardholder benefits.

 

Other things to bear in mind

 

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:

 

  • How you use it – You need to be able to make at least the minimum payment every month, so bear that in mind when you’re thinking about whether to get a card. It’s also a good idea to think about whether the credit limit suits your needs.
  • Fees and charges – If you’re planning to use your card to withdraw cash, then it’s worth noting that almost all credit cards charge a small fee to do so. Other fees include balance transfer fees and, of course, interest.
  • Charges for spending abroad – Most credit cards will charge you for using your card abroad. It’s best to check this with your provider before you travel to avoid a costly surprise at the end of your trip.
  • If you already have other cards – If you’re close to your credit limit on other cards, it’s a good idea to focus on paying off the balance of your existing cards rather than taking on a new one. To help, we’ve created a guide to reducing credit card debt with helpful tips about how to take control of your balance. The exception is if you take out a balance transfer card to help consolidate your existing debt and move your balance to a lower interest rate.
  • Checking you’re eligible – Before you start applying for cards, use our FREE SafeCheck Eligibility Checker to see if you’re likely to be accepted. SafeCheck is a ‘soft’ credit check, which means that you can see it in your credit history but lenders can’t, so it won’t affect your credit score or chances of being accepted for other credit.

How can an Aqua card help?


Aqua Card

We understand that there are many reasons why your credit score might not be where you want it to be and we want to help. To us, you’re much more than your credit score so if you apply for an Aqua card, we’ll do everything we can to say “yes” and help you on your journey to better credit.


A credit card is a great way to help get your finances back on track and improve your credit score by making your payments on time and sticking to your credit limit. Which Aqua card is best for you?




Aqua Classic

We can help you start your journey to building a better credit score when you manage your account well. Our most popular credit card, the Aqua Classic could help improve your credit history. We continuously monitor your account and could even offer to increase your credit limit after four months of good credit behaviour.

Learn more about Aqua Classic

35.9% APR

Representative (variable)

 

  • Starting credit limit: £250-£1,200
  • No annual fees



Aqua Reward

0.5% Cashback (up to £100 p.a.) on whatever you buy if you stay within your credit limit and pay on time. Just like our other cards, the Aqua Reward helps you to rebuild your credit score but also rewards you with up to 0.5% cashback (up to £100 per year) on what you buy, providing that you stay within your credit limit, and make monthly repayments on time.

Learn more about Aqua Reward

34.9% APR

Representative (variable)

 

  • Starting credit limit: £250-£1,200
  • No foreign exchange fees for using your card abroad



Aqua Advance

Reduce your rate over three years if you stay within your credit limit and pay on time. Want a longer-term solution? Aqua Advance reduces your interest rate over time. Keep making your payments on time and stay within your credit limits, we'll drop your interest rate every year for three years. All while you build a better credit score!

Learn more about Aqua Advance

34.9% APR

Representative (variable)

 

  • Starting credit limit: £250-£1,200
  • No foreign exchange fees for using your card abroad

Don't forget


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.