MONEY · CREDIT CARDS EXPLAINED UK
Credit Cards Explained
How credit cards work, interest, minimum payments, and the real cost of borrowing.
Quick summary
- Credit cards are a form of revolving credit
- Paying the full balance avoids interest
- Minimum payments extend repayment time
- Section 75 offers legal protection
- High interest rates make long-term borrowing expensive
For information only
Credit cards allow you to borrow money to pay for purchases and repay it later. Used carefully, they offer convenience and consumer protection. Used poorly, they can become expensive long-term debt. This guide explains how UK credit cards work, how interest is calculated, minimum payments, and key risks. This is general information, not personal financial advice.
How Credit Cards Work
A credit card gives you a credit limit.
You can:
- Spend up to that limit
- Repay some or all of the balance
- Reuse available credit
Each month, you receive a statement showing:
- Total balance
- Minimum payment
- Payment due date
If you pay the full balance by the due date, you usually avoid interest on purchases.
Interest and APR
If you do not repay in full, interest is charged on the remaining balance.
APR (Annual Percentage Rate) reflects the yearly cost of borrowing including interest and standard fees.
APR varies depending on:
- Credit history
- Type of card
- Promotional offers
Typical UK credit card APRs are often 20%–30%+.
Higher APR means higher borrowing cost.
Minimum Payments Explained
Minimum payments are typically:
- A percentage of the balance
- Or a fixed small amount
Paying only the minimum:
- Extends repayment over many years
- Increases total interest paid
- Keeps balances high
Example:
A £2,000 balance at 25% APR could take many years to clear with minimum payments alone.
Types of Credit Cards
Standard cards
- Everyday spending
- Interest charged if unpaid
0% purchase cards
- Promotional interest-free period
- Interest applies after promotion ends
Balance transfer cards
- Move existing debt
- May charge transfer fees
Rewards cards
- Points or cashback
- Often higher interest rates
Credit builder cards
- Designed for poor credit
- Lower limits
- Higher interest rates
Section 75 Protection
Under Section 75 of the Consumer Credit Act 1974, credit card providers share liability with retailers for purchases between £100 and £30,000.
This means:
- If goods are faulty
- If a company goes bust
- If services are not delivered
You may claim from the card provider.
Financial Ombudsman Service
Website: https://www.financial-ombudsman.org.uk
Phone: 0800 023 4567
Email: complaint.info@financial-ombudsman.org.uk
Credit Card Risks
Risks include:
- High interest accumulation
- Persistent debt
- Credit score damage
- Late payment fees
- Overlimit charges
Missing payments can remain on your credit file for six years.
FCA Regulation
Credit card providers are regulated by the Financial Conduct Authority (FCA).
FCA
Website: https://www.fca.org.uk
Consumer helpline: 0800 111 6768
Lenders must treat customers fairly and assess affordability.
When to Seek Help
If you are:
- Only making minimum payments
- Using one card to pay another
- Missing payments
- Feeling overwhelmed
Contact a free debt advice provider.
StepChange
National Debtline
Key takeaways
- Paying in full avoids interest
- Minimum payments increase total cost
- Section 75 provides strong legal protection
- High APR makes long-term borrowing expensive
- Early action prevents escalation
Do all credit cards charge interest?
Interest applies if you do not pay in full, unless within a promotional 0% period.
Does cancelling a card improve my credit score?
Not necessarily. It can reduce available credit and increase utilisation.
Is a credit card better than a loan?
It depends on repayment plans and interest rates.
Can I claim under Section 75 for online purchases?
Yes, if the purchase value is between £100 and £30,000.
What happens if I miss a payment?
You may incur fees, interest, and credit file damage.
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