A credit card is a type of bank card that lets you borrow money – credit – before paying it back with interest. They work as a type of loan, but instead of getting money in an account you get credit that you spend via the card, before paying back what you owe each month.
How do credit cards work?
If you’re successful in applying for a credit card, you’ll receive the card in the post. Separately you will receive a personal identification number (PIN) to go with the card. Once you have your card and PIN, you need to activate the card, often online, for it to be ready to use.
You’ll be able to use your credit card to make purchases before paying back the balance, or part of what you owe, each month. There is usually a minimum monthly payment you should make to avoid any fees, but if you pay your balance back in full every month you can avoid paying interest at all.
This means that if they’re used sensibly, credit cards can almost function like an interest free loan. However, it you don’t make your payments on time you could face charges as well as high interest rates. Using your credit card responsibly can provide big financial benefits.