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Last updated on 18 December 2019

Everything you need to know about credit cards

Despite the fact that credit cards are everywhere, there still seems to be some confusion. People aren’t sure where to find the best credit card for their needs, how to check their eligibility, how to clear their credit card debt, and many more.

In today’s world, credit cards are everywhere. People may use a credit card to pay for a short bus ride or a luxury holiday. They can be used for emergencies, or for planned expenses. They are usually plastic, but now we have seen ones made of metal, virtual ones and of course the ones that are now connected to our phones. Credit cards are such a common part of our lives these days that some shops don’t even take cash anymore!

Despite the fact that credit cards are everywhere, there still seems to be some confusion. People aren’t sure where to find the best credit card for their needs, how to check their eligibility, how to clear their credit card debt, and many more. This is our attempt help simplify credit cards and help people across the UK have a better understanding of credit.

1: History of credit cards

Despite their ubiquitousness, credit cards haven’t really been around for that long, especially when you consider how long other credit products have been around for. Credit cards were invented in the USA in the 1950s, in California. People weren’t too sure about them at first and in the beginning many people didn’t end up paying back, but the banks put the early performance down to teething and the rest is history.

Credit cards are the ‘babies’ of credit, when you consider loans were invented over 5000 years ago in ancient Mesopatamia. And Overdrafts were first invented in the early 1700s in the UK.

2: Credit cards in the UK

Today, the UK has adopted credit cards and never looked back. All of the big banks offer many different types of credit cards, all with varying prices, credit limits, rewards and some even offer cash back. The varying suite of products shows how credit card providers are starting to ‘personalise’ these products as some people just want a cheap rate, while others might want free air miles and some others would just prefer to get some cash back!

Credit cards in the UK cater to people across income levels and credit scores. You can get a credit card for a credit limit as low as a few hundred pounds and as high as a few million pounds! Of course all credit card providers will make a decision on the amount of credit that you can get based on your credit report, your income and a number of other factors that we discuss below.

One type of credit card that has gained in popularity lately in the UK is the ‘0% transfer credit card’. These cards let a borrower transfer all of their existing debts to a new card, where they pay 0% interest on the balance for a given set of time. These can be very helpful if you want to clear your credit card debt, but 0% doesn’t last forever, so be careful!

In the UK, applying for a credit card, using a credit card, and repaying your credit card will all have an impact on your credit score. It’s important to understand the various factors at play so you can take control of your finances.

3: How to get a credit card

There are so many ways to get a credit card in the UK. You can get one from your bank, you can sign up to one in the airport, you can apply online directly, or you can go to one of many price comparison websites to see what the best deal is.

When you apply for a credit card, you should first make sure you know if there will be a hard or soft credit check on your credit file. If there will be a hard check, that means that other lenders will be able to see you applied for credit previously. If you get accepted, this is not a big problem, but if you get rejected it could hurt your future access to credit.

Other credit providers get nervous if they see someone has applied for a number of credit products but did not get them. This could imply riskier behaviour, and result in them not giving you credit. This is why when you apply for credit, you usually want to make sure the application is just a soft search.

It’s now more common for credit providers to do a soft search when someone is checking their eligibility. Most of the times you will only see a hard search if you have been accepted and decided to take up the card. But either way, you should still check to make sure! There are a number of credit card eligibility checker websites now, which also show you the best prices. These are called Price Comparison Websites and are now where most of the people in the UK will shop for a credit card.

When you go to a Price Comparison Website, or ‘PCWs’, to apply for a credit card, they will send your details to a large number of credit card providers, who will then do a credit card eligibility soft search on you. The PCW will then display all the offers that are available to you, usually ranked by the cheapest price (However, this isn’t always the case, so you should still check all the offers available to you, just in case).

Most PCW’s in the UK now offer a credit card acceptance checker for free, so as long as they are soft search, which they should be, you have no risk in visiting one of these sites to see what offers are available to you. You will still be able to see all the credit cards that did a soft search on you, but no one else will.

4: Different types of credit cards

Credit cards have many uses. If you know how you plan on using your credit card, it helps you choose the best credit card for you. For example, if you want a credit card to help pay off debt, that is very different from a credit card to build credit and both of those are very different to a credit card that is used for having fun on holidays!

If you already have different loans or credit cards you can apply for a 0% balance transfer credit card and transfer your existing loans onto a cheaper rate. These types of credit cards can help clear credit card debt. They give you a chance to put all of your loans onto one new rate that is 0% for some time. However, you need to make sure you read the fine print, since these cards will eventually switch back to a much higher rate.

Many times there can also be a one time fee when you transfer your debt, so make sure you understand the true cost before you try to make the switch.

There are also credit cards for bad credit eligibility. If you have bad credit, due to previous mishaps in the past, not all credit cards will at first be available. These types of cards will often have a higher rate attached to them as well as a lower credit limit. The point of bad credit cards is to give you time to build up your credit, and they should eventually offer you a lower rate and/or a higher credit limit over time.

If you have really bad credit, you can get a pre-paid credit card. For these cards, lenders are not taking much risk since you deposit funds into them first. These are easy credit cards to obtain since lenders are taking much less risk. As with other cards, often times there will also be a monthly fee, so make sure to read all of the details of the agreement.

Lots of credit cards offer more than just credit. They offer various different kinds of rewards too, usually based on how much you spend. You can get free air miles for every pound you spend, access to airport lounges, or even cash back. Some cards will also charge a monthly fee, but others may just be based on a minimum spend amount. Make sure you compare the various credit cards rewards before you choose what is best for you.

All of the above credit cards can be applied for online. Many people will also get them thought the mail. Lenders send offers for pre approved credit cards throughout the UK. You will have also seen offers for pre-approved cards in your email.

Most price comparison websites will have special sections for bad credit. Here you can see the various offers and notice the higher rates. If you use their credit card eligibility checker for bad credit you can see which offers you will be able to get. In most cases, this should be a soft search, but double check to be sure.

5: Your credit limit

Your credit limit is a crucial part of your credit card and credit agreement. This is the maximum amount you will be able to borrow. If you have a credit card limit of 5000 in the uk, this means you can never take more than £5000 at any gvien time. If your credit card limit is £500, then you won’t be able to take more than £500. If you make a £250 credit card purchase, then you will only have £250 left before you hit your credit limit.

If you reach your credit limit, you won’t be able to borrow more until you have repaid some of the balance. It’s wise to be disciplined and clear you credit card, at least a little bit, regularly. It’s important to have access to credit, but if you have reached your credit limit, you can’t use your credit card.

Over time, if you show responsible behaviour, by repaying all or part of your credit card balance regularly, this will help improve your credit score. It will also most likely lead to your credit card provider offering to increase your credit card limit. This can be helpful, but again, you have to be careful. Sometimes people have not noticed their credit card limit increased, resulting in them unknowingly taking too much debt, thinking they were far from their credit limit. Not knowing where you stand makes it harder to manage your finances.

6: Risks of credit cards

There are a number of risks to be aware of when using your credit card. Too much debt is always bad as it makes it harder to manage your finances in the future. It makes it harder to take risks and without access to credit for emergencies, there is very little room for mistakes.

When taking credit, make sure you understand what you are signing up to. Make sure you know what your monthly payments will be so you can budget accordingly. Generally speaking, the more expensive the debt is, the riskier it is. This is because higher interest charges can rack up, and if you are late, the charges will increase.

You should also be mindful about how you schedule your repayments. It can be tempting to just make the minimum payment, but this is a lot more expensive in the long term. You just pay a little bit every month, but since you are just paying a minimum amount, you aren’t make progress on clearing your credit card debt. Interest charges will continue to add on to all outstanding debt.

While you also want to make sure you don’t leave your debt outstanding for too long, it’s also important that you have enough time to repay your credit card balance, so it doesn’t leave you under any undue stress or hardship. It’s best for you to figure out what’s the right amount you can afford to repay each month, and stick to that schedule. The more you can comfortably afford to repay the better. Every time you clear credit card debt, you create a higher amount of credit available for you when you need it next.

To reduce risks around using your credit card, make sure you have a good understanding of what your credit limit is, how you make repayments, the interest costs when you borrow, and of course look out for any hidden fees and fine print!

7: Benefits of using your credit card

There are a number of benefits of having a credit card that is suitable for you. Credit cards give the ability to make purchases on demand. This is a lot more convenient than using cash. They also let you make purchases now and spread the cost of them over time. This is particularly helpful in emergencies or times when things are a bit tight.

If you have an emergency that needs to be paid for, credit cards can be some of the easiest ways to manage through those emergencies. If you get an unexpected MOT bill, or need to pay that dental bill, credit cards can also be handy.

Credit cards aren’t just useful for buying things. Credit cards help build your credit. If you use a credit card responsibly over time, this will get reported to the credit agencies. On time credit card repayments should help improve your credit score over time. Regular credit card repayments also show responsibility, which should help build your credit. If you can increase your credit score, you increase the options of credit available to you.

You can also increase your access to credit by having a larger credit limit that you don’t use. If you stay far away from your credit limit, other lenders may see this as a sign of financial stability, deciding to offer credit that they might otherwise not have. You can do this by either increasing your credit limit or repaying your credit card debt. It’s even better if you do both!

8: The importance of not maxing out your card

If you want to maintain a healthy credit profile and healthy finances, it’s important to not max out your credit card. If you reach your credit limit, this means you can no longer use your credit card. This can be put you in a precarious place if an unexpected expense arises. Without the ability to use your credit card, you’ll need to find another way to pay for it. These times can also be stressful, which can increase the risk of bad decisions.

Make sure you don’t take a very expensive loan just because it’s the most convenient. Again, you should use a free eligibility checker that does a soft search to find what’s best for you.

Reaching your credit limit is also bad because it can restrict your access to other forms of credit. If you have no more available credit and apply for a new loan, other lenders will see that you are maxed out and may look at this as a bad sign. It could be a sign of over-indebtedness. This highlights how it will get even harder if another unexpected expense arises.

To make sure you don’t hit your credit card limit, make regular payments in an amount that is comfortable to you, but only just, as you want to pay off your credit card debt as soon as possible. This not only helps save money but also frees up credit for any future unexpected expenses. This helps you stay in control of your finance.

9: How credit cards affect your credit report

Using a credit card will effect your access in a number of ways. It can increase your access to credit or reduce your access to credit, depending on a number of factors. You should be aware of all of them to stay in control of your credit and finances.

When you take up a credit card, this will show up on your credit file. Even when you apply, it will show up on your credit file. Nowadays, most applications are done by soft search, meaning only you will see it on your file. This also doesn’t affect your score.

If you apply for credit with a hard search, it won’t affect your score, but other lenders will see it. If they see you have applied for a number of credit products, they may get nervous, wondering why so many others turned you down and why you are applying for so much credit. If you accept any credit offered, this will always leave a hard mark, but that is often not a bad thing. It could be a bad thing if you have taken a number of loans recently and also if you have taken payday loans.

In general, lenders don’t love to see lots of loans outstanding at once. And they really don’t like to see lots of hard searches for credit at once, as that could be showing signs of risky behaviour.

How you pay off your credit card also affects your score. Making on time repayments, and never being late will help improve your score overtime. It may not happen right away, but a long history of stable credit card repayments will help move your score higher. The higher your credit score, the more options you have, and usually the cheaper your credit will be.

How you manage your credit will also affect your credit report. It might not affect your score, but if you are always maxed on on your credit card, that’s bad. At the same time, if you always have a lot of credit limit available, that is good.

If someone is always maxed out, lenders will think they aren’t managing their debts appropriately. If you always have credit available, it looks responsible. This is important to keep in mind for credit building credit cards that have low credit limits.

If your credit limit is £500, then the difference between looking like a risky borrower vs a responsible borrower is only a few hundred pounds. This shows you how it’s really worth it to clear your credit card debts when you can.

10: Credit card alternatives

If you can’t get a credit card, or don’t think they are right for you, there are a number of alternatives. You can also find most of these on the price comparison sites. Credit unions can also be a great source. As with credit cards, make sure you understand all the key terms and only take what you think is suitable for you. And in general, try your hardest to avoid any high cost short term credit! There are a number of various credit providers out there who should be able to help.

Creditspring is one form of alternative credit. We created Creditspring as an alternative to what is out there, focused on making something that was really simple, really transparent, really easy to use, and really easy to pay back. We help people without perfect credit scores, helping them have access to credit when they need it while also helping them build their credit for the future.