Credit Cards Explained: A Guide to Types, Costs and Responsible Use

Last Reviewed: 9th November 2026

Credit cards are a common way to pay for purchases, offering flexibility, convenience and the option to spread the cost of spending over time. However, while credit cards can be useful financial tools, they also involve borrowing money that must be repaid, often with interest.

There are many types of credit cards available in the UK, from reward and travel cards to balance transfer and credit-building cards. Each offers different features, costs and eligibility requirements.

Understanding how credit cards work, what they cost and how to manage repayments can help you decide whether a credit card is suitable for your circumstances.

In this guide, we explain the different types of credit cards, their advantages and disadvantages, how to use them responsibly and what to consider before applying.

What is a Credit Card?

A credit card is a payment card issued by a bank or other lending institution that allows you to borrow money to make purchases or pay for eligible services.

Unlike a debit card, which takes money directly from your bank account, a credit card allows you to spend up to an agreed credit limit and repay the amount borrowed at a later date.

You will receive regular statements showing your transactions, outstanding balance, minimum payment and payment due date.

You can usually choose to repay your balance in full or make smaller payments, provided you meet at least the minimum repayment required under your agreement.

If you do not repay the full statement balance, interest will generally be charged on the outstanding amount, subject to your card's terms and any promotional offers.

A Brief History of Credit Cards

Before modern credit cards became widely available, some retailers offered their own credit arrangements that customers could use only at particular stores. The development of cards accepted by multiple merchants helped transform consumer borrowing.

In 1958, Bank of America introduced BankAmericard, an important predecessor of today's Visa network.

As payment processing technology developed, credit cards became easier to use and more widely accepted. Today, they can be used for everything from everyday shopping to online purchases and international travel.

How Do Credit Cards Work?

When you are approved for a credit card, your provider sets a credit limit based on factors such as your financial circumstances, credit history and affordability.

For example, if your card has a £1,000 credit limit and you spend £200, you will generally have £800 of available credit remaining, assuming there are no other transactions, fees or outstanding amounts.

As you repay what you owe, your available credit increases again.

This makes a credit card a form of revolving credit, similar to a credit line, meaning you can borrow, repay and potentially borrow again within your agreed limit.

Understanding Credit Card Statements

Your monthly credit card statement will normally include:

• Your outstanding balance.
• Purchases and other transactions made during the statement period.
• Any interest or fees charged.
• The minimum repayment required.
• The date your payment is due.
• Your available credit limit.

Reviewing your statement regularly can help you identify unnecessary spending, check for unfamiliar transactions and plan your repayments.

How is Credit Card Interest Charged?

Credit card interest depends on the type of transaction, the applicable interest rate and how much you repay.

Many credit cards provide an interest-free period on purchases when you meet the conditions for paying your statement balance in full and on time.

However, if you carry a balance from one month to the next, interest may be charged.

Cash withdrawals and certain other transactions can have different interest rates and may attract interest immediately.

The Annual Percentage Rate (APR) can help you compare the cost of different credit products, although the amount you actually pay will depend on how you use the card.

Always check the interest rates, fees and repayment conditions before applying for a credit card or any other type of credit.

Types of Credit Cards Available in the UK

There are several different types of credit cards, each designed for particular spending or borrowing needs.

Reward and Cashback Credit Cards

Reward credit cards offer incentives when you make eligible purchases.

Depending on the provider, rewards may include:

• Cashback on qualifying spending.
• Retailer discounts or vouchers.
• Airline miles or travel points.
• Loyalty rewards and other benefits.

These cards may be attractive if you regularly use your credit card and repay the balance in full.

However, some reward cards charge annual fees or have higher interest rates. If you pay interest on outstanding borrowing, the cost could outweigh the value of the rewards.

It is important to compare the overall costs rather than choosing a card purely because of its incentives.

Credit-Building Credit Cards

Credit-builder cards are suitable for people who do not have any credit history or have a poor credit score and are considered a high-risk borrower. The credit limit on these cards is often low and the interest rates are higher than normal credit cards. The terms of use of the credit card may become more favourable as you improve your creditworthiness through repaying your debt on time.

However, there is no guarantee that using a credit-building card will improve your credit score, and missed payments could make your credit history worse.

For more detailed information about eligibility and how these products work, read our guide to credit cards for bad credit.

Travel and Currency Credit Cards

Making travel plans is exciting, but you may be hit with unexpected hefty fees if you use your credit card to book flights and hotels or use your card abroad. Most credit and debit cards will charge you a fee for every purchase or withdrawal made abroad. The travel card reduces the risk of the purchase and makes it more convenient to spend money abroad. It offers excellent exchange rates and does not charge fees for every transaction. The interest rates on these cards may be higher but settling the debt on time will avoid high charges incurring.

Over the last 5 years, multi-currency accounts have become increasingly popular for world travellers offering an alternative to travel credit cards.

Money Transfer Credit Cards

A money transfer card helps you to move the debt from your bank account to your money transfer credit card. The debt may be easier to pay off this way as money transfer credit cards offer 0% interest rate for a set period of time and therefore if repaid within that period, the overall amount due will be lower. There is often a fee associated with using this card.

Balance Transfer Credit Cards

Balance transfer cards are specifically designed to help you repay your debt faster as they offer 0% interest rate for a set period. They are usually only available to customers with excellent credit ratings. By transferring your debt from a credit card to a balance transfer card, usually for a small fee, you may be able to repay the debt faster through the money you have saved in interest fees.

We explain how to use these cards effectively later in this guide.

Purchase Credit Cards

Purchase credit cards may offer an introductory 0% interest period on eligible purchases.

Purchase cards are typically useful for spreading the cost of a large purchase. These cards offer an interest-free period as long as you are able to make the minimum repayments and stick to the terms of the credit. The ideal scenario is if you can repay the debt within the interest-free period. As with balance transfer cards, obtaining a purchase card will usually require that the borrower has a high credit score.

Combined Balance Transfer and Purchase Cards

This card offers the benefits of both products into one and is usually only available to borrowers with an exceptional credit score. It is useful in spreading the cost of a large purchase and keeping the interest rate low.

It is important to understand when each offer expires and how repayments are allocated.

What Are the Advantages and Disadvantages of Credit Cards?

Credit cards can offer several benefits, but they also create financial commitments.

Credit Card Purchase Protection

One important benefit of paying by credit card is the potential protection available under Section 75 of the Consumer Credit Act 1974.

For eligible purchases where the cash price is more than £100 and no more than £30,000, the credit card provider may be jointly responsible with the supplier if there is a breach of contract or misrepresentation.

This could be relevant if goods are not delivered, a supplier goes out of business or a qualifying purchase is misrepresented.

Section 75 does not apply to every transaction, and certain arrangements can affect eligibility. If something goes wrong with a purchase, contact your credit card provider to understand whether you can make a claim.

How to Use a Balance Transfer Credit Card Responsibly

A balance transfer credit card can be a useful way to manage existing credit card debt, particularly where a promotional interest rate reduces the amount of interest payable.

However, the benefits depend on how you manage the account.

Check the Balance Transfer Fees and Conditions

Before transferring a balance, check:

• Whether a balance transfer fee applies.
• How long the promotional interest rate lasts.
• The interest rate charged after the promotion ends.
• Whether purchases are covered by the same promotional rate.
• The minimum monthly repayment.
• Any restrictions on transferring balances between providers.

A 0% interest offer is not necessarily free if a transfer fee applies.

Make at Least the Minimum Repayment

Even during a 0% promotional period, you must continue making the minimum monthly payment. Missing a payment may result in fees, affect your credit score and potentially cause you to lose the promotional interest rate. Paying more than the minimum payment can help you clear the transferred balance sooner.

Avoid Adding Unnecessary Purchases

Once you have transferred existing debt, it can be tempting to use the new card for additional spending. However, new purchases may be subject to different interest rates or conditions.

Increasing your balance can also make it harder to repay the original debt before the promotional period ends.

Keep Track of the Promotional Deadline

Make a note of when your introductory interest rate expires. Ideally, work out how much you need to repay each month to clear the balance before that date.

For example, a £1,200 balance over a 12-month interest-free period would require repayments averaging £100 per month to clear it within that period, assuming there are no additional fees, interest or spending.

If you cannot repay the balance before the promotional period ends, consider the potential interest costs when deciding whether the transfer is worthwhile.

Understanding Credit Card Limits

Your credit limit is the maximum amount your provider has agreed to let you borrow on your card.

The amount offered will depend on the lender's assessment of your circumstances.

Should You Increase Your Credit Card Limit?

There may be circumstances where a higher credit limit provides additional flexibility. However, an increased limit also means you could borrow more money and potentially accumulate a larger balance.

Before requesting an increase, consider:

• Whether you genuinely need access to additional credit.
• Whether the higher limit could encourage unnecessary spending.
• Whether you could afford repayments if you used more of the available credit.
• Whether the provider will carry out an additional credit check.

A higher credit limit does not automatically mean that borrowing more is appropriate.

If your provider offers an increase, you do not have to accept it.

How Can You Request a Credit Limit Increase?

Depending on the provider, you may be able to request an increase through your online account, mobile app or customer service team. The provider may review your account management, income, existing commitments and overall affordability before making a decision.

Some lenders also periodically review accounts and offer eligible customers an increase. Approval is not guaranteed, and the provider may decline the request or offer a different limit.

For more information about how credit limits and borrowing behaviour relate to your credit history, see our guide to credit scores.

How Many Credit Cards Should You Have?

Much like when you consider the number of bank accounts you should have, there is no single number of credit cards that is suitable for everyone. Some people prefer one card for simplicity, while others use different cards for particular benefits, such as travel spending or balance transfers.

Why Might Multiple Credit Cards be Beneficial?

Having more than one credit card may allow you to access different features or promotional offers. For example, one card might provide cashback on purchases while another offers a balance transfer promotion.

However, these benefits should always be weighed against the costs and responsibilities of maintaining multiple accounts.

Potential Drawbacks of Multiple Credit Cards

Managing several credit cards can make it harder to keep track of:

• Different repayment dates.
• Interest rates and promotional deadlines.
• Outstanding balances.
• Annual fees and other charges.
• Your total borrowing across all accounts.

Having more available credit may also create a temptation to spend beyond your means.

Opening several new accounts within a short period can result in multiple credit searches, which may influence how lenders assess future applications.

Tips for Managing Multiple Credit Cards

If you have more than one card, keep a record of each account's repayment date, balance and interest rate.

Set up payment reminders or Direct Debits to reduce the risk of missing repayments.

If you are paying interest on multiple balances, it may be worth prioritising additional repayments towards the borrowing with the highest interest rate while maintaining the minimum payments on all accounts.

You should also regularly review whether each card still serves a useful purpose.

Should You Pay Household Bills With a Credit Card?

Some credit card providers allow customers to pay certain household bills and subscriptions using their cards.

Depending on the service provider, these may include:

• Mobile phone contracts.
• Broadband and internet services.
• Streaming subscriptions.
• Gym memberships.
• Insurance payments.
• Certain utility bills.

However, not every company accepts credit cards, and some payment arrangements may involve additional charges or restrictions.

Benefits of Paying Bills by Credit Card

If your card offers rewards, eligible bill payments may help you collect points or cashback. Using a credit card may also make it easier to review certain transactions together on one statement.

However, these benefits are generally most useful when you can repay the balance in full and avoid interest charges.

Risks of Paying Bills by Credit Card

Using a credit card to cover regular household bills can become expensive if you cannot afford to repay the balance.

For example, paying essential expenses on credit every month without reducing the outstanding balance could create an increasing debt.

You should also avoid assuming that paying a bill by credit card automatically provides Section 75 protection, as eligibility depends on the transaction.

Important: If you regularly need to borrow to pay for essential household costs, consider reviewing your budget and seeking support rather than relying on additional credit.

How Do Credit Card Minimum Payments Work?

Credit card providers usually require customers to make at least a minimum repayment each month.

The amount may be calculated using a percentage of the outstanding balance, a fixed minimum or another method specified in the agreement. The exact calculation varies between providers.

Benefits of Minimum Payments

The ability to make a minimum repayment provides flexibility when you cannot repay your entire balance at once. Meeting the minimum payment also helps you comply with the repayment terms of your agreement. However, minimum payments should not be confused with an affordable long-term repayment strategy.

Why Can Minimum Payments Cost More?

When you repay only the minimum amount, a larger balance may remain outstanding and continue attracting interest. As a result, it can take considerably longer to clear the debt, and the total interest paid may be significantly higher.

For example, if you regularly use a credit card and make only the minimum required payment, your balance may reduce very slowly.

Where affordable, paying more than the minimum can help you reduce interest costs and clear your balance sooner. If you are struggling to make even the minimum repayment, contact your card provider as soon as possible to discuss the support available.

What Happens if You Miss a Credit Card Payment?

Missing a credit card repayment can have financial consequences.

Depending on the card provider and your agreement, you may face:

• A late payment fee.
• Additional interest on outstanding borrowing.
• Loss of a promotional interest rate.
• Restrictions on your account.
• A missed payment being recorded on your credit file.

Missed payments can also affect future applications for credit.

What Should You Do if You Forget to Pay?

If you realise that you have missed a repayment, take action as soon as possible.

1. Check the amount outstanding

Review your statement or online account to establish how much you need to pay and whether any fees have been added.

2. Make a payment if you can afford to

Paying the overdue amount promptly may help prevent the situation from becoming more serious.

3. Contact your card provider

If you cannot afford the repayment, explain your circumstances and ask what assistance may be available. Depending on your situation, the provider may be able to discuss repayment arrangements or other forms of support.

4. Review your payment arrangements

Consider setting up a Direct Debit or payment reminder to reduce the likelihood of missing future repayments.

If you are experiencing wider financial difficulties, free debt advice is available from organisations such as StepChange, Citizens Advice and MoneyHelper.

How to Use a Credit Card Responsibly

Responsible credit card use involves understanding your borrowing, keeping spending affordable and making repayments in accordance with your agreement.

1. Only Spend What You Can Afford to Repay

A credit limit is not a spending target. Before using your card, consider whether the purchase fits within your budget and how you intend to repay it.

Avoid using your credit card for unnecessary purchases simply because you have available credit.

2. Pay Your Balance in Full Where Possible

Paying your statement balance in full and on time can help you avoid purchase interest where your card's terms provide an interest-free period.

If you cannot repay the full amount, try to pay more than the minimum where affordable.

3. Always Make Payments on Time

Keeping track of repayment dates is essential. A Direct Debit can be useful, but you should ensure that sufficient funds are available in your bank account.

4. Monitor Your Credit Card Statements

Regularly reviewing your statements can help you:

• Keep track of spending.
• Identify unexpected charges.
• Check whether promotional rates have expired.
• Spot transactions you do not recognise.
• Understand how much you owe.

5. Be Cautious About Applying for Additional Credit

Before applying for another card or an alternative form of credit like a credit line, consider whether you genuinely need it. Multiple applications within a short period may influence future lending decisions.

Where available, eligibility checkers using soft credit searches can help you explore potential options without necessarily leaving a visible hard-search footprint for other lenders.

6. Review Your Credit Limits and Existing Accounts

Check whether your credit limits remain appropriate for your circumstances. You do not need to maintain unused accounts or accept credit limit increases simply because they are available.

Equally, closing an account can have implications for your overall credit profile, so consider your circumstances before making changes.

How to Freeze Your Credit Card

Many credit card providers offer a feature that allows customers to temporarily freeze their card.

This can be useful if you have misplaced your card, suspect unauthorised activity or want to temporarily restrict certain transactions.

How Do You Freeze a Credit Card?

Depending on your provider, you may be able to freeze your card through:

• Your mobile banking app.
• Your online account.
• Customer services.

A card freeze typically prevents certain new transactions, but the exact restrictions depend on the provider.

For example, some recurring payments may continue while a card is frozen.

If your card is lost, stolen or you suspect fraud, contact your provider promptly rather than relying solely on a temporary freeze.

How Do You Unfreeze a Credit Card?

If you find your card and are satisfied that it is secure, you may be able to remove the freeze using the same app or account settings.

Not every card provider offers the same functionality, so check the instructions for your particular card. Temporarily freezing a payment card is different from placing protective measures on your credit file.

Should You Get a Credit Card?

Whether a credit card is suitable depends on your financial circumstances, the reason you want to borrow and your ability to manage repayments.

Before applying, ask yourself the following questions.

Can I Afford the Repayments?

Consider your income, essential household expenses and existing financial commitments.

If you are already struggling to meet regular payments, taking on additional borrowing could increase financial pressure.

Do I Understand the Total Cost?

Check the card's interest rates, annual fees, transaction charges and any promotional terms.

A card with attractive rewards or an introductory interest rate may become expensive if you carry a balance or miss repayments.

Do I Need a Credit Card for a Particular Purpose?

Think about whether you need a card for everyday purchases, travel spending, purchase protection, a balance transfer or another specific reason.

Different card types offer different features, and not every product will be suitable for your needs.

Have I Considered My Eligibility?

Credit card providers assess applications using their own lending criteria.

Your credit history can influence the types of products available to you, but lenders also consider factors such as income, existing borrowing and affordability.

If you have experienced credit difficulties, our dedicated guide to credit cards for bad credit explains the considerations involved when exploring these products.

How Do Credit Cards Compare With a Credit Line?

Credit cards and credit lines are both forms of revolving credit, but they operate differently.

With a credit card, you can generally make purchases directly using the card.

With the Polar Credit Line, approved customers can request funds within their agreed credit limit, which are then transferred to their bank account.

Both products involve borrowing money that must be repaid, and interest or other charges may apply.

The application process, available credit limits, repayment requirements and overall costs will vary between products and providers.

Credit cards may offer additional features such as purchase rewards or introductory balance transfer rates.

A credit line provides a different way of accessing approved borrowing and should be assessed on its own terms.

Before choosing either product, consider the total cost of borrowing, how repayments work and whether the arrangement is affordable for your circumstances.

For a broader look at different borrowing products, visit our guide to credit card alternatives.

Making an Informed Decision About Credit Cards

Credit cards can provide convenience, payment flexibility and useful features when managed responsibly. However, borrowing on a credit card also comes with responsibilities, and interest charges can make purchases considerably more expensive if balances are not repaid.

The most suitable card will depend on your individual needs, financial circumstances and ability to manage repayments. Before applying, compare products carefully, read the terms and conditions and make sure you understand the potential costs.

More Information

• Credit Cards for Bad Credit
• Credit Builder Cards
• A Guide to Credit Scores
• Credit Card Alternatives
• Difference between a credit card and a credit line

For further information about Polar Credit, visit our FAQs or contact us.