How do credit cards work?

A credit card gives you a pre-approved credit limit to spend up to each month. You receive a monthly statement showing all transactions and the minimum payment required. If you pay the full statement balance each month by the due date, you pay zero interest — the credit is completely free. If you carry a balance, interest is charged on the remaining amount at your card's APR, which can be 20–40% on standard cards.

What is Section 75 protection on a credit card?

Section 75 of the Consumer Credit Act 1974 makes your credit card provider jointly liable with the retailer if something goes wrong with a purchase between £100 and £30,000. If the retailer goes bust, doesn't deliver goods, or misrepresents a product, you can claim directly from your credit card provider for a full refund — even if you only paid part of the amount on the card. This is one of the strongest consumer protections available and is a key reason to use credit cards for significant purchases.

What is a 0% purchase credit card?

A 0% purchase credit card offers an interest-free promotional period — typically 12–24 months — on new spending. If you have a large planned purchase (new kitchen, car repairs, home electronics) and can pay it off before the 0% period ends, you effectively get free credit. After the promotional period, the remaining balance is charged at the card's standard APR. Always set up a Direct Debit to pay off the balance before the 0% period ends.

Credit Cards Explained -

How Credit Cards Work

A credit card is a revolving credit facility — you're given a credit limit (say £3,000) and can spend up to that amount each month. At the end of each billing cycle (typically monthly), you receive a statement showing your transactions, your balance, the minimum payment required, and the full statement balance.

The golden rule of credit cards: pay the full statement balance by the due date every month. If you do this, you pay zero interest — the credit is completely free. You also build a positive payment history. If you pay only the minimum, interest accrues on the remaining balance at your card's APR — which can be 20–40%.

A credit card used correctly is free money with consumer protections and reward points attached. The same card used incorrectly — carrying a balance, only paying minimums — becomes one of the most expensive forms of borrowing available. The card itself isn't good or bad; it's the behaviour that determines the outcome.

Understanding Credit Card APR and Interest

APR (Annual Percentage Rate) is the annual cost of carrying a credit card balance. UK credit cards range from about 20% APR for standard cards to 40%+ for credit builder cards. Here's what that actually costs:

Balance Carried	APR	Monthly Interest	Annual Interest Cost
£1,000	22%	~£18	~£220
£3,000	22%	~£55	~£660
£5,000	34%	~£142	~£1,700

The minimum payment trap: if you have a £3,000 balance at 22% APR and only pay the minimum each month (~2.5% of balance), it would take over 20 years to clear the debt and cost over £3,000 in interest alone — more than the original amount borrowed.

Types of Credit Card

For purchases

0% Purchase Card

0% interest on new spending for 12–24 months. Ideal for a planned large purchase you can pay off within the promotional period. After the 0% period, remaining balance reverts to standard APR.

For existing debt

0% Balance Transfer Card

Transfer existing card debt to pay 0% interest for 12–29 months. Small transfer fee (1–3%). Stops interest accruing and lets you clear debt faster. See our full balance transfer guide.

For rewards

Rewards / Cashback Card

Earn points, miles, or cashback on spending. Only worthwhile if you pay in full monthly — interest costs far outweigh any rewards if you carry a balance. Best for those who use cards for convenience and pay off completely.

For building credit

Credit Builder Card

Designed for those with limited or damaged credit history. High APR (30–40%), low limits (£200–£1,200). Use for one small monthly payment, pay in full by Direct Debit, never carry a balance. Builds credit score over 6–12 months.

For travel

Travel Credit Card

No foreign transaction fees on overseas spending (standard cards charge 2–3%). Some earn air miles or hotel points. Useful for holidays and foreign travel. Pay in local currency, not sterling, when asked at point of sale.

For premium

Premium / Metal Card

High annual fees (£150–£700+) in exchange for travel insurance, airport lounge access, concierge services, and high rewards rates. Only makes financial sense if you use the benefits enough to exceed the annual fee.

Section 75: Your Credit Card Superpower

Under Section 75 of the Consumer Credit Act 1974, if you pay for goods or services costing between £100 and £30,000 with a credit card and something goes wrong, you can claim against your credit card provider — not just the retailer. This applies even if you only pay a deposit on the card.

Scenarios where Section 75 protects you:

Retailer goes into administration before delivering your item
Holiday company collapses before your trip
Item significantly different from description
Service never delivered (contractor disappears)

To claim: contact your card provider's disputes team, explain the issue, and provide evidence. They must investigate and refund you if the claim is valid. This protection does not apply to debit cards, BNPL, PayPal (in most cases), or cash.

✅ Use credit cards for significant purchases

Any purchase over £100 that you'd want protection on — flights, holidays, electronics, large appliances, contractor deposits — should be put on a credit card and paid off immediately. You get Section 75 protection at zero extra cost, and the amount clears immediately from your credit card so no interest is charged.

How to Use a Credit Card Without Paying Interest

Set up a Direct Debit for the full statement balance every month — not the minimum.
Never spend more on the card than you have in your current account.
Don't use your credit card for cash withdrawals — interest starts immediately, at a higher rate, with no grace period.
Check your statement monthly and query any unrecognised transactions immediately.
Keep the account open even if you rarely use it — it contributes to your credit history length and total available credit.

Frequently Asked Questions

Contact your card provider immediately — before missing a payment. Most providers have hardship teams that can arrange temporary reduced payments, interest freezes, or restructured repayment plans. A proactive call is always better than a missed payment on your credit file. Free debt advice is available from StepChange, Citizens Advice, and National Debtline — all free, confidential, and non-judgmental.

Multiple credit cards aren't inherently bad for your credit score. What matters is your payment history across all of them and total utilisation. Having several cards with low balances and a perfect payment record can actually help by demonstrating credit management ability and increasing total available credit. What hurts your score: applying for several cards in quick succession (multiple hard searches) and carrying high balances across multiple cards.

A charge card (like traditional American Express) must be paid in full each month — there's no revolving credit and no carrying a balance. A credit card allows you to carry a balance and pay it off over time (with interest). Charge cards typically have no preset spending limit but require full monthly repayment. Most 'credit cards' issued today are revolving credit cards, not charge cards.

Important: Credit card rates and features change frequently. Always check current terms directly with card providers. Section 75 protection applies to purchases via credit cards in the UK only. Not financial advice.