UK Credit Guide: Credit Cards

Credit Cards are one of the most common forms of borrowing, with almost 60 million cards issued in the UK alone (as of Oct 21). Their ease of application, revolving function and flexibility are just some of the reasons consumers prefer this form of credit. Credit cards work in a similar way to debit cards in that they can be used to purchase goods or pay for services either in person or online. The big difference between credit and debit cards is the way the funds are allocated. Debit cards are linked to a person’s bank account and when a transaction is made, the funds are deducted directly from the balance. Credit cards transactions are charged to an account, which the user must repay at a later date and often include additional interest charges.

Interest Rates

The interest rate on a credit card is usually displayed as APR (Annual Percentage Rate). The APR on a credit card is used to show the borrower how much interest the lender charges for using the card. Each month, the lender will issue a statement to the borrower which will include any interest accrued on the balance of the card. This will be the percentage rate of the balance of the card during the statement period. So, for example, if you have a balance of £100 on a credit card with a 22.9% interest rate you’ll be charged 1/12 of that percentage each month. Most credit card companies won’t charge any interest if the balance of the card is cleared before the statement date.

The interest rate offered by a credit card company tends to be based on the applicant’s financial situation. For example, those with a strong credit history may be eligible to apply for a low-interest credit card or even a credit card with an interest-free period. The credit card interest rate will always be clearly displayed on the lender’s website before you apply, some even advertise low rates or low APR credit cards in an attempt to attract new customers.


When a potential borrower makes an application, the lender will run some checks on them to assess their credit card eligibility. This is to ensure they meet the lender’s initial criteria such as age, income, residency etc. Lenders often require you to begin an application to check your eligibility, though this usually won’t affect your credit score. Some comparison sites such as MoneySupermarket have a facility known as a credit card eligibility checker, which can assess your eligibility for several different cards simply by running a soft credit search on you. They can, in some cases, even show your likelihood of being accepted for the card based on the information you have provided.

Credit Limits

When a lender approves a credit card application, the borrower will be told of their credit limit. This is the maximum amount they will have available to spend on their card. Lenders often decide this based on the borrower’s credit history and the amount of other credit they have available to them.
High limit credit cards are often only available to those with a very good credit history, though lenders will usually review this periodically and make adjustments based on the card usage. If the borrower is shown to be using their card sensibly, the lender may offer to increase the credit card limit.

Section 75

Section 75 refers to a specific section of the Consumer Credit Act 1974 which outlines that the credit card company will be jointly and severally liable if the retailer or trader breaches their contract. This means that if a product purchased via the credit card is faulty or the service is not fulfilled, you have the right to reclaim the costs from the credit card provider, providing it is over £100. This is particularly useful if the business goes into liquidation and you’re not able to claim back from them directly.

Different types of credit card

Balance transfer credit cards
Balance transfer credit cards are most often used for those looking to consolidate other debts. Credit card balance transfers work by paying off the balance of one or more credit cards with a new card, combining several debts into one. Lenders usually charge a fee for transferring the balance which is a percentage of the amount transferred. Cards specifically advertised as ‘balance transfer cards’ tend to have special transfer offers to entice new applicants such as interest-free periods, or offering to waive the balance transfer fee.

Money transfer credit cards
Money transfers work in a similar way to balance transfers, though the money is transferred into the user’s bank account instead. This can be useful for those looking to clear debts other than credit cards, or if they wish to withdraw the money to make a cash purchase. Money transfer cards aren’t as popular as balance transfers so the offers aren’t usually as competitive or attractive as the latter.

0% interest credit cards
As the credit card market is so competitive, lenders will often advertise special offers to attract new applicants. One of the most sought after offers are those which offer interest-free or no-fee cards. Interest-free or 0% interest cards often have a set limit for the offer such as 3 months, after that time they will charge their regular interest rate on any remaining balance. 0 percent interest credit cards can be useful for those who want to make a large purchase and spread the repayments over a few months with zero added interest.

Credit cards for bad credit
Those with bad credit may have difficulty applying for a credit card and find they are limited to specific ‘credit builder cards’. These often come with a smaller credit limit and a higher rate of interest due to the increased risk of lending to a person with a poor credit history. These can be useful, however, to help rebuild or improve a person’s credits core, if used sensibly.

Reward credit cards
Credit card lenders want their users to spend money on their cards, so offering incentives for purchases can often encourage this. A popular type of reward credit card is what is known as a cashback credit card. These essentially give the user a small percentage of their cost purchase back to them. Cashback types and amounts vary by lender, so it is worth comparing cashback credit cards to see what is available.
Another popular type of reward card is what is known as air miles credit cards. Similar to cashback cards, air miles cards offer points for spending on the card, usually per £1 spent. These points can then be converted into flights once they reach a certain amount, which could be handy for frequent fliers. Depending on the type of card used these can also be used to convert to hotel stays or retail vouchers if you’re not likely to use them for flights.

There are so many types of credit cards on the market, designed to suit almost every individual’s situation. While not every type of card is available for every person, the lenders are usually pretty transparent with their eligibility requirements so you’ll likely have a good idea of your likelihood of approval before applying. As with any credit product, it is always recommended to seek independent financial advice before taking out any new lines of credit.

Please note, none of these articles are intended to constitute financial advice and should be used for informational purposes only.