How credit cards work

Build your knowledge and confidence on choosing and using a credit card.

What exactly is a credit card?

In simple terms, a credit card offers you a flexible way to borrow money to make payments, which you then repay to your credit provider later.

You can choose to pay off your statement balance in full each month, or spread payments over a longer period. Just bear in mind, interest may be charged if you borrow over a number of months, unless an introductory or promotional rate applies. Fees may also apply to some credit card transactions.


For a quick summary, watch our short video

Watch our video to find out what a credit card is and how it works.
  • Helping you to understand credit cards.

    When you use a debit card to pay for something the money is taken from your account but with a credit card you borrow the money and then have to pay it back later so you want to be sure you pick a credit card that's right for your needs.

    A credit card provider will charge you for the money you borrow there are normally two different charges: interest which is worked out as a percentage of the money you've borrowed, and fees like an annual fee or a charge for things like late payments.

    When you take out a credit card the provider will give you a credit limit. This is the maximum you can borrow on the card it's based on your own situation.

    Let's take an example.  Meet Ian he's got a new credit card with a credit limit of a £1000. He wants to spend £500 on repairing his car then pay it back over time. Every month, Ian will get a credit card statement telling him his overall balance, the minimum he needs to repay and when he needs to do it by. 

    If he pays off his entire balance before the due date he won't have to pay any interest. If he pays it back over a longer period he'll pay interest unless he has an introductory interest-free offer.

    With a credit card you can change how much you pay back each month depending on your situation so if Ian doesn't have much cash to spare he can choose to pay the minimum amount that month - this is the minimum that his credit card provider will let him pay towards his balance each month.  But if Ian pays more than his minimum payment each month, he'll pay off the balance faster and pay less interest too. 

    That's why we recommend paying off as much as you can each month. Some people use a credit card to spread their spending you could furnish your new house when you move in then pay for it over the year or if you already have some borrowing, a balance transfer lets you move your balance from one credit card to another with a different provider.

    This means you could take advantage of a lower interest rate to bring down your monthly outgoings although transfer fees may apply. Credit cards also offer protection under section 75 of the consumer credit act so if you spend between £100 and £30, 000 on your card and there's a problem with your purchase you could get your money back - handy if you're buying something big like a holiday or a suite of furniture.

    Here are a couple of key points to remember when choosing a credit card.  Firstly think about how you want to use it then pick the right one for you.  And remember the more of your balance you pay off each month the less interest you'll pay.

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What’s a credit card useful for?

  • Manage larger purchases
    A credit card could help you to spread larger expenses, such as home improvements, a new TV or car repairs – giving you the option to repay over a number of months.


  • Manage unexpected costs
    If your car breaks down, or you need to make emergency repairs at home, a credit card could help you to manage the immediate costs and spread your repayments.
  • Protection on purchases
    Most credit card purchases of over £100 and up to £30,000 are covered by Section 75 of the Consumer Credit Act, which may be reassuring if anything goes wrong.


  • Consolidating other balances
    If you’ve got balances with other credit and selected store card providers, you could transfer them to organise your finances and potentially take advantage of lower interest rates.

Credit card transaction types



Card purchases

  • Pay for goods or services with your credit card, in store or online, including contactless and mobile payments.
  • Spread larger expenses, such as a holiday or home improvements.
  • Using a single card could help you to track and manage your everyday spending.

Balance transfers

  • Move balances from other credit and selected store card providers, making things easier to manage.
  • With everything in one place, you’ll have fewer statements and payments to keep track of.
  • Transferring higher interest balances could reduce the overall cost of borrowing.
  • Transfer fees may apply.

Money transfers

  • The flexibility to move money from your credit card account to your UK current account.
  • Handy for cash only purchases or to manage unexpected bills.
  • Transfer fees may apply. Not all credit providers offer this service, and it may not be immediately available to new customers.

Cash transactions

  • The option to withdraw cash, buy foreign currency or another cash equivalent with your credit card.
  • Often the most expensive way to borrow, but it could be helpful when you really need cash.
  • Fees and interest may apply.

Credit card fees and charges

  • Interest is charged as a percentage of the money you borrow. The rate can vary based on the transaction type and whether a promotional or introductory interest rate applies.
  • Fees may apply to some transaction types. For some accounts an annual fee also applies.
  • Additional charges may apply for late and returned payments, or going over your credit limit.

Credit card statements

While there’s a balance on your credit card account, you’ll receive a statement each month, providing useful information about your account, including:

  • Your balance on the date the statement was produced.
  • A list of transactions since your previous statement.
  • Your minimum payment amount and the date it’s due.
  • A breakdown of your balance and the interest rates which apply, including expiry dates for any introductory or promotional interest rates.

Making credit card payments

Your latest statement details the minimum payment you need to make, along with the due date.

If you can’t pay the whole statement balance, it’s a good idea to pay as much as possible to keep any interest costs down.

Credit cards and your credit score

Credit reference agencies securely hold information about you and your financial past, using this to issue your credit score. Lenders can access this information to support their decisions around offering credit.

The way you manage your borrowing is important. For example, if you don’t make payments on time or go over your credit limit, in addition to fees, charges and the possibility of losing any promotional interest rates, your credit score could also be affected.

Frequently asked credit card questions

  • A debit card is linked to your current account. When you use it, money is taken from your account balance.

    A credit card is a separate account. When you use it, you borrow money you’ll need to pay back later.

    There are more complex differences though, including the costs for using one or the other.

  • 1. What do you need a credit card for?

    Most credit cards are created with a specific use in mind, although some offer a range of benefits.

    2. Consider your options

    • Does this option suit my borrowing needs, or should I consider other alternatives?
    • Will I be able to make repayments, even if my circumstances change?

    3. Compare card features carefully

    As well as looking at any introductory interest rates, look at differences in account fees and charges.
    Many credit card issuers provide an eligibility check tool, helping you to narrow down your search to credit cards you are eligible to apply for. The Bank of Scotland version is called One Check

    Choosing a credit card

  • The maximum amount you can borrow is also known as your credit limit. This is set based on an assessment of your personal circumstances when you open your account, but it can also change over time if you’re offered a different limit, or you request one.

    You’ll find your current credit limit on your latest statement, or you can check it online using Internet Banking.

  • You can use a credit card in most countries outside of the UK.

    Just bear in mind that fees may apply when you make transactions abroad, so it’s a good idea to check your account terms and conditions before you travel.

    Using a credit card abroad

  • Most credit card purchases of over £100 and up to £30,000 are covered by Section 75 of the Consumer Credit Act 1974, which means you could claim a refund if something you’ve paid for is faulty, doesn’t arrive or isn’t as described.