How a credit card works
Improve your knowledge with this in-depth guide from our experts.
Unlike a debit card, which uses the money in your account to pay for things, a credit card borrows money, which you’ll then need to pay back later. So it’s important to choose a credit card that’s right for your needs. You’ll usually be charged for borrowing in two ways:
- Interest, which is worked out as a percentage of the money you’ve borrowed.
- And other fees, which can be standard or charges for things like late payments.
Every person gets a credit limit for their card. This is the maximum amount a credit card will allow you to borrow at any given time and is based on your personal circumstances.
For example, say John has a new credit card with a credit limit of £1,000. He can use this to repair his car for £500 then pay this off over time. Every month, John will get a credit card statement that tells him his overall balance, how much his minimum payment is and the due date he needs to pay by.
If he pays off his entire statement balance before that month’s due date he won’t be charged interest at all. However, if he pays it back over a longer period he’ll pay interest – unless he happens to have an interest-free offer.
A credit card lets you change how much you pay back each month depending on your circumstances.
So if one month John’s budget is particularly tight he can choose to pay only the minimum payment. This is the minimum amount his credit card provider will let him pay towards his balance each month.
However, if John regularly pays more than his minimum payment, he will clear his balance faster and pay less interest on the money he borrowed. That’s why we recommend paying as much as you can every month.
So, if you use it responsibly, a credit card can be a helpful tool.
For example, you can furnish your new house whenever you move in, then pay for it over the course of the year. Or, if you have existing borrowing, but see a lower interest rate offer, you could reduce your outgoings by transferring your balance to a credit card with another provider.
For purchases over £100 and up to £30,000, credit cards offer protection under Section 75 of the Consumer Credit Act. So if there’s a problem with your purchase, your credit card provider could help you get your money back.
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Visit lloydsbank.com/creditcards for more information on credit cards.
Frequently Asked Questions
A debit card is linked to your bank or building society account. So when you use it, money is taken from your account balance.
A credit card, on the other hand, is not connected to your account. When you use it, you’re borrowing the money – with the promise to pay it back in the future.
For a more detailed look at the many other differences, including the charges associated with debit and credit cards, read our full guide.
- Always plan what you intend to use the card for
Many credit cards have a specific use, so bear this in mind. If your needs change, you may also need to change the type of card you use.
- Research a number of options thoroughly
Don’t just look at the headlines such as Representative APR. Read the small print carefully too.
- Pick the one that best suits your needs
If you need one that offers a bit of flexibility too, that’s fine.
- Think about how much you can repay
Consider how much you can pay off your card and when.
- Always plan what you intend to use the card for
The total amount you’re allowed to borrow on a card is called your credit limit.
This limit is set based on your credit score and personal circumstances at the time of applying for the card.
If you’re an existing Lloyds credit card holder trying to find your credit limit, please check either your monthly statement or Internet Banking.
Yes, you can use a credit card abroad.
Although the majority of providers will charge you a fee for making a foreign transaction.
With this in mind, always check your card’s terms and conditions so you know what to expect.
Unlike debit cards, credit cards offer consumer protection under something called Section 75.
This applies to most card purchases of over £100 and up to £30,000.
If a purchase goes wrong, your card provider shares responsibility with the retailer and could help you to get your money back.
Important legal information
Lloyds Bank plc. Registered Office: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales no. 2065 Lloyds Bank plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under registration number 119278.Visit the Lending Standards Board website.
We may monitor or record telephone calls to check out your instructions correctly and to help us improve the quality of our service. Calls from abroad are charged according to the telephone service provider’s published tariff. Not all Telephone Banking services are available 24 hours a day, 7 days a week. Please speak to an adviser for more information.
How much we lend and the issue of a credit card depends on an assessment of your circumstances. You must be 18 or over and a UK resident to apply.
Terms and conditions apply to all Lloyds Bank credit cards benefits. Full details will be sent with your card. After each introductory period ends you will be charged at the appropriate standard rate.
Mastercard® is a registered trademark, and the circles design is a trademark of MastercardInternational Incorporated.