Credit cards are used for many things: they can be used to make purchases when you might not have the cash ready, to reduce the cost of expensive debt by getting a lower interest rate, and to earn rewards and cashback when you make purchases.
funds before approaching the bank.”
How credit cards work
When you apply for a credit card, you apply to borrow money from the card issuer, usually a bank or building society. The issuer then looks at your credit history to consider your application – and if you have a low credit score you could be refused credit, or perhaps given a less attractive deal on interest rate.
If you have a good credit rating, then you will be accepted and the bank will set a credit limit, which is the maximum amount you can spend on the card. The card company will send you a statement every month, detailing any transactions on your card, plus the amount owing. It also provides details on the minimum payment you need to make (this depends on how much you have your balance) and the payment due date.
Borrow money for nothing
When you purchase something on a credit card, it normally comes
with an interest-free period of around 56 days. This means that if you
pay the balance in full each month, there will be no interest to pay.
This is one of the main reasons credit cards are used for making
big purchases, because you can pay off an item over time, at a low rate
of interest – or even interest-free, for a specified period of time.
However, this can
be more and will accrue interest quite quickly if you have a high
balance on the card, but then you could always transfer the balance on
to another card. But always be aware of your limits, because it is easy
to fall into deeper debt.
A good way of looking through most
cards, including 0% purchase credit cards and 0% balance transfer
cards, is to use our Smart Search comparison tool. It’s a free way to
see which cards you’re most likely to be accepted for without impacting
your credit score.