What is a Credit Card?

A credit card is a type of payment card that is issued by credit card providers, such as banks or other finance companies, to individuals. It can be used in shops or online transactions instead of cash or a debit card. Whilst with a debit card the individual needs to have the amount of money they wish to spend already in an account, ready to be debited, a credit card does not work the same way.

Credit Limit

A credit limit is issued to the user of the card and they can pay for goods or services up to the amount stated. The card will be blocked over the limited amount and a fee will also be charged if the agreed limit is exceeded.


Each month the credit card user will get a statement of spending and will need to pay the minimum balance specified. They do not need to clear the whole balance, just a minimum sum. However for any balance that is not cleared, interest is charged at an agreed rate. Some credit card interest rates can be very high, and they all differ in terms of rates.

Why is a Credit Card Useful?

A credit card can be useful to people who wish to make a large purchase but have not had a chance to save up the money beforehand. They can purchase the item with the credit card and then pay off the balance a little at a time over the coming months.
Some credit cards also offer points or cashback when the card is used. It is possible to put all your monthly spending on the card in order to get the cashback, however this is only profitable if the balance is paid off at the end of the month in full, otherwise interest will be charged which will counteract the profit from the cashback.

Purchase Protection

An advantage of using a credit card is that the law protects purchases of between £100 and £3,000. This means that if you buy something for over £100 online for example, and the goods are never received, the credit card company will help you claim against the supplier. If the money is not received from the supplier, the credit card company themselves will compensate you for the lost money.

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