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How a credit card works

Improve your knowledge with this in-depth guide from our experts.

What is a credit card?

A credit card can be a simple and flexible way of borrowing money.

Every time you pay with a credit card, you borrow from your card provider to make that payment.

It’s up to you whether you pay off your statement balance in full each month or over time. If you pay it off later, you may be charged interest on what you owe, unless you are in an introductory interest free period. You may also be charged credit card fees.

Watch our video for more information.

Why is a credit card useful?

Spreading your spending 

A credit card can help you to manage larger purchases such as a holiday, TV or home improvements – allowing you to spread and vary repayments over time.

 

Handling unexpected costs 

If the boiler breaks, or your car needs fixing, a credit card could help to cover these unforeseen costs in an emergency. You can then cover the cost and repay what you owe, over time.

Protecting your purchases

Most credit card purchases of over £100 and up to £30,000 are covered by Section 75 of the Consumer Credit Act.

 

Managing existing debts

For some people, transferring existing credit card debts to a card with a new provider can save on interest payments, so you can pay off what you owe sooner.

How can I use a credit card?

Card purchases

Paying for things in store or online using your credit card – you won’t pay interest if you pay off your statement balance every month. Some fees may still apply.

Why are card purchases useful?

  • To spread the cost of large purchases such as a holiday or TV.
  • It could help you manage your monthly budget for everyday spending like groceries.

Balance transfers

Moving your borrowing from one card to a different credit card from a different provider. Transfer fees may apply.

Why are balance transfers useful?

  • To organise your existing debts.
  • To reduce interest payments by moving to a lower rate card, and to pay off your debt more quickly.

Money transfers

Transferring money directly from your credit card into your UK current account. Fees may apply. Money transfers may not always be offered immediately with a new credit card by some providers.

Why are money transfers useful?

  • For unexpected costs to your current account, such as car repairs.
  • To avoid use of your unplanned overdraft.

Cash transactions

Using your credit card to withdraw cash or buy foreign currency. This may incur fees and you will pay interest from the date of purchase. 

Why are cash transactions useful?

  • For when you absolutely need cash.

How will I be charged when I use a credit card?

As a general rule, credit cards work by charging you in two ways.

 

Interest  

Interest is charged as a percentage of the money you’ve borrowed. But the rate can also vary depending on how you use your card.

 

What is interest?

 

Fees

Some fees are standard, such as annual card fees which certain credit card providers may charge. Some are charges for late payments, cash withdrawals, etc.

 

Explore credit card fees

Credit card statements explained

As a credit card holder, you’ll receive a balance statement from your credit card provider every single month. This statement offers a summary of important information regarding your account:

  • How much you still owe.
  • The purchases you’ve made that month.
  • Payments you’ve made to your credit card.
  • Your minimum payment for that month.
 

How do credit card payments work?

With most credit cards, you’re expected to pay at least some of your debt off every single month. If you pay off all of your monthly spending for purchases before your due date, then you usually won’t be charged interest.

The smallest amount you’re allowed to pay each month is called a minimum payment. Read about minimum payments.

  • It’s a good idea to pay off your full balance every month to keep any interest costs down.
  • If this isn’t possible, try to pay off as much as you can.

How do credit cards affect my credit score?

Credit cards can affect your credit score in several ways. We typically use three sources of information to build your credit profile:

  • Your credit card application
    Details submitted by you.
  • Your history with us
    How you’ve managed any loans, credit, or accounts you have with Lloyds Bank. For example, making all of your credit card payments on time and not missing a payment will help your credit score.
  • Information from credit reference agencies
    We’ll complete a check on you with our selected credit reference agencies.

Credit scoring is based on the experience we’ve built up with borrowers over many years. Your credit score is personal to you and can alter as your circumstances change.

Frequently Asked Questions


  • Debit card 

    A debit card is linked to your bank or building society account. So when you use it, money is taken from your account balance. 

    Credit card 

    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. 

    More on debit and credit cards

    1. 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.
    2. Research a number of options thoroughly
      Don’t just look at the headlines such as Representative APR. Read the small print carefully too.
    3. Pick the one that best suits your needs
      If you need one that offers a bit of flexibility too, that’s fine.
    4. Think about how much you can repay
      Consider how much you can pay off your card and when.

    How to pick a credit card

  • 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.

    More on credit limits

  • 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.

    Using credit cards abroad

  • 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.

    Read more about section 75

Where next?

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.