Choose Wisely’s guide to how a credit card works

Choose Wisely’s guide to how a credit card works
Written by Mark Grimley
Published on 5th July 2017
Updated on 23rd August 2018
Share this guide

Spending with a credit card

A credit card lets you spend up to a preapproved limit. You are, however, required to make repayments on a monthly basis and the credit card provider will decide how much these will cost. If you pay your credit card off in full and on time every month, you will find that credit cards can help you to build your credit file and sometimes earn rewards.

What will my credit limit be?

The popularity of online applications means that you should get an indication of what your credit limit is likely to be soon after approval. Credit limits are based on your financial circumstances and take into account your incomings and outgoings, what level of credit you have already and how you have managed that credit.

Do I have to make monthly payments?

Yes. Even if you manage to receive a 0% introductory purchase period offer you will still be expected to make monthly repayments. Where possible, try to get into the habit of paying your credit card off in full every month.

What’s the best way to repay credit cards?

We would always recommend setting up a direct debit to ensure you don’t miss any payments, otherwise, you might incur charges.

What about my credit record?

When applying for a credit card, your credit score will be taken into account. The higher credit limits and more attractive interest rates are often awarded to those with excellent credit scores. There are a number of different types of credit cards all offering different terms and benefits, so always ensure you are applying for the credit card best suited to your own individual circumstances.

Anything to watch out for when looking at how a credit card works?

Yes. Although you can use a credit card to withdraw cash from a cash machine, it is not recommended as you will incur charges for doing so. You will also need to check any charges or penalties that you might receive if fall behind on payments, as well as those for conducting balance transfers or a credit card fee.

Find credit cards for bad credit

Have bad credit? Have a look at the full range of credit cards and compare your options using a Choose Wisely comparison table.

Mark Grimley
Written by
Mark Grimley
Head of Partnerships & Take Control Author at Choose Wisely

Mark joined Choose Wisely in 2015. He continues to work in close contact with the providers, brokers and journalists operating in the world of consumer credit.