How Do Credit Cards Work?

Before getting a credit card, it’s important to understand how they work. If used responsibly, a credit card can help you manage your money and enjoy more financial freedom.

Understanding how credit cards work

When you use your credit card, you’re borrowing money. What you spend on the card is recorded on your balance and you receive a bill each month from the card issuer. This spend now, pay later arrangement can give you a grace period, often up to 56 days, of interest-free borrowing if you pay back the balance in full each month.

However, if you don’t pay your balance off in full each month, you’ll have to pay interest – a percentage of the money you owe the lenders – on top of what you borrowed. Interest rates vary, but the exact amount is determined by the interest rate stated in your agreement.

You are required to pay back at least a minimum amount each month, but if you pay this and no more you will end up paying a lot of interest over a very long time. You should always aim to pay off as much of the balance as you can afford and preferably settle your bill in full each month.

If you don’t have the cash you need until payday, a credit card can give you some extra leeway for emergencies or more expensive one-off purchases. While not paying your bill on time can be costly, using a credit card sensibly can make it an effective tool in managing your money.

How is a credit card different to a debit card?

When you spend with a debit card you are using the existing money you have in your bank or building society account. With a credit card, the credit card issuer will set a limit on how much you can spend on your card based on your ability to handle debt. So, even if you don’t have actual cash to make a payment, you’re able to pay with a credit card.

Credit cards can also help protect you from fraud and provide a convenient option for internet shopping. When your debit card is used fraudulently, the money will instantly be missing from your account. With a credit card, you can notify your credit card company and you won’t pay for any of the transactions while they resolve the matter.

How to use your credit card

When purchasing an item with your credit card, you’ll agree to pay either by signing a receipt or by entering a personal identification number (PIN). You can also use some credit cards to consolidate and manage debt with balance transfers and others can be used to get competitive foreign currency exchange rates when travelling overseas. Mastercard and Visa cards are accepted in millions of places at home and abroad – just be aware of the charges before you travel.

marbles is a Mastercard, meaning you can enjoy the benefits and protection of the brand, everywhere you go.

Representative Example:

Interest rate for purchases34.9% P.A.(variable)
With a representative34.9% APR(variable)
Assumed credit limit£ 1,200