Credit cards made clear

Whether you're new to credit cards or already have one or two, this section will explain how they work, what to look out for and what to do if things go wrong. Alternatively you can get a free copy of our Credit cards booklet. You can download or order it online – see Free printed guides.

The UK Cards Association, which represents all major UK credit card issuers, also has a guide to help you understand how credit cards work. It explains the factors you should think about when choosing one and the best ways to use your card.

What is a credit card?
A credit card is a form of borrowing. You can apply for one from a bank, building society and certain high-street stores. If they accept your application, they (your card issuer) will set you a credit limit (the maximum amount you can borrow).

How does it work?
You can use your credit card to buy goods and services, and you'll get a statement each month showing how much you've spent. You have to pay back at least the minimum amount shown on the statement each month. The card issuer will charge you interest each month on any money you still owe (the outstanding balance).

A credit card gives you the freedom to buy things now and pay later, but usually at a cost – see Credit card charges.

Your card
The card will carry your issuer's name and brand, as well as the brand of one of the card schemes, such as VISA, Mastercard or American Express. You will not deal directly with VISA or Mastercard, but you may do with other card schemes such as American Express or Diners Club. Credit card companies are also likely to run your account (though some companies may outsource some activities to third parties or another company within their group).

Credit card charges
The credit card company will charge you:

•interest monthly on any balance you owe;
•a fee for cash withdrawals, balance transfers, foreign currency transactions or for using credit card cheques; and
•fees or charges for going over your credit limit or for late or missed payments.
Some credit card companies may also charge you a yearly or monthly fee.