Should I get a credit card?

How credit cards work

There are hundreds of credit cards available, a variety of different types for different needs that allow you to borrow a certain amount to purchase items. But you'll need to pay this amount back at a later date, and interest might be added on top (depending when you pay, and the type of card you have). 

If you're looking to take out your first card, or get a different type, it's important to consider what will work best for you. Chosen and used wisely, a credit card can be the cheapest way to borrow but be wary of potential pitfalls

Here are some of the ways you might benefit from a credit card.

Protection under Section 75 and chargeback

If you're looking to make a purchase of £100 or more, you may have been told to put it on a credit card. This is because credit cards have additional legally-binding protection that debit cards do not.

If you use a credit card to pay in full or partly for goods or services costing between £100 and £30,000, you get valuable protection under section 75 of the Consumer Credit Act.

Even if section 75 doesn't apply, for example, if the total cost of the purchase is less than £100 or more than £30,000, you may be able to put in a claim under the industry-agreed chargeback system.

Protection if you lose your wallet or purse

If you lose a wallet or purse full of cash, it's unlikely that you'll be able to get it back. However, if you're unfortunate enough to fall victim to card fraud, you have legal protection to ensure you don't lose out financially.

Your bank must refund any fraudulent payments immediately unless it has evidence that there is reason to refuse a refund.

Improve your credit score

If you have a poor or limited credit history, you may struggle to access the best credit deals. But some credit cards are designed specifically to build your credit rating so that you can access better deals in the future. Bear in mind that these are likely to have lower credit limits and higher interest rates than other options, so you should make sure you pay the bill in full every month.

• Find out more: how to improve your credit score 

Which credit card is best for you?

There are a number of different credit card types available, some will reward you for spending money, others are suited for travelling abroad and some are ideal to spread the cost of a big purchase.

Here, we explain how to find the best credit card for you. If you would like more information about each type of card, check out our guide on credit card types.

Best for clearing debt

If you have a store card or credit card debt, you should consider a 0% balance transfer credit card.

These cards allow you to shift your debt from the expensive card, to the 0% balance transfer card, usually for a fee but will give you a set amount of time to pay off the debt interest-free.

This gives you the chance to pay down the debt faster and save money, as all your payments will go towards the debt rather than the debt and interest.

If you're in overdraft debt, you could use a 0% money transfer card. These allow you to shift money from the card into your bank account as cash. You will then be given a set amount of time interest-free to clear the debt on your credit card.

• Find out more: best 0% balance transfer cards

Best for getting cashback and rewards

Some credit cards will pay you a percentage of what you spend as tax-free cash, which is usually credited to your account once a year.

But they're only worth considering if you pay off your credit card bill in full each month - otherwise, the interest will outweigh any rewards.

You can also get a reward credit card that will give you points for your spending, such as Nectar and Avios. These cards work very similarly to cashback cards and should be paid off in full every month to avoid any interest charges.

• Find out more: best cashback credit cards

Best for spending abroad

Most debit cards charge you a foreign loading fee if you use them for purchases abroad. This is also the case for most credit cards, but some will waive this fee on transactions made overseas.

• Find out more: best travel credit cards

Best for spreading the cost of a big purchase

These cards offer 0% on purchase deals, which charge no interest for a limited time.

This means if you purchase a new sofa at £2,000, you could split the cost of it into monthly instalments and not have to pay any interest for 21 months - the longest deal available right now. These cards can also be a smart choice when paying for a service annually is cheaper than paying monthly, as is often the case with car insurance. However, you still need to pay the minimum amount each month or you will lose the 0% deal.

• Find out more: best interest-free credit cards

What to consider before you apply for a credit card

Is a credit card my best option?

Before you opt for a credit card, you may first want to check if your current account has a fee-free overdraft that will meet your spending needs.

For smaller loans, you could consider a credit union. As non-profit financial organisations, they usually offer loans that are cheaper than other providers and that don't incur fees.

If you need to borrow a larger amount, a personal loan may be a better choice. Unsecured personal loans are usually a cheaper option and you will have a fixed monthly payment until the loan is paid off.

Check your credit score

It's a good idea to check your credit score regularly as those with the best scores get offered the best deals.

Your credit score will affect your credit limit (how much you will be able to borrow), how long any introductory deals will last and the interest rate you'll be charged.

You can check your credit score for free online and some credit reference agencies will even give you tips on how you can improve it.

• Find out more: how to check your credit score for free

Check your eligibility

When you apply for a credit card it will leave a mark on your credit file, so if you apply and you are rejected, it will be more difficult to get a card in the future.

This is why it's always best to check your eligibility first. Most credit card providers will have an option to do this on their website beforehand - in this case, they carry out a 'soft search', which does not impact your credit score.

Check what details you need

Once you're ready to apply for your card, you will need the following information: name, address, date of birth, nationality, employment status, and salary.

Understanding your credit limit

You will be given a credit limit when you open up your credit card account - this is the maximum amount of money you can owe at any one time on that card.

For example, if you have a credit limit of £2,000 and your balance stands at £1,000, then you have a remaining limit of £1,000. If you go over that limit, you'll usually face charges and won't be able to spend on the card until you have paid some of your debt.

You'll normally find out what your credit limit is when you apply for the card, this will be decided on a range of factors including your credit history, your available income, your existing credit card commitments, your limits on other credit cards and the lender's lending policy.

The longer you stick to the agreed payments, the more reliable a borrower you look and after a few months you could ask your lender to increase your limit, or they may offer it to encourage you to use it more.

If you are taking out a credit card in order to help improve your credit score, Experian recommends that you not use more than around 25% of your available credit each month.

When you should not use a credit card

There are some things you shouldn't use a credit card for, including:

Paying for foreign currency

If you want to buy foreign currency before you go on holiday, don't pay by credit card - not only will your card provider charge you a cash advance fee, most will also charge you a higher APR and you won't get an interest-free period, even if you repay your bill in full and on time.

The same can go for buying gift cards and vouchers.

Third-party payments

Using your credit card with third-party payment systems can mean you'll lose important section 75 protection on items that cost more than £100.

At the time of writing, this includes Paypal (but NOT Paypal Credit), Google Wallet (but NOT Google Pay), 'Buy now, pay later' schemes such as Klarna, Curve, and third-party sellers on Amazon.

Paying by credit card cheque

Credit card providers aren't allowed to send unsolicited credit card cheques anymore, but if you've got any hidden in a drawer or if you've opted into receiving them, shred them now.

Section 75 cover never applies to credit card cheques, and you'll have to pay a fee to use one.

Withdrawing cash

Cash withdrawals attract a withdrawal fee, as well as a higher APR, and don't enjoy the interest-free period available for other types of spending.

They are also recorded on your credit report and can be viewed by lenders as a sign of financial stress, something that could affect your ability to get credit.

Is taking on more debt right for me?

During the cost of living crisis, consumers increasingly turned to credit in order to meet household expenses.

But it's important to carefully consider whether taking on extra debt is manageable - both in the short and the long term. Our credit card repayment calculator can help you work out how much your credit card debt will cost you, and when you will clear it.

If you're considering taking on more debt because you're struggling to make ends meet, it may be worth exploring other resources.

Firstly, make sure you're maximising your household income with all of the financial support you're entitled to. Resources such as Turn2us can help you find government benefits, grants, and other schemes you may be eligible for, depending on your situation.