Credit cards explained: Understanding the basics: video transcript
A credit card allows you to borrow money to pay for goods and services, with the promise that you'll repay the card provider what you owe at a future date – typically with interest added if you don’t make the payment quickly enough.
Credit card providers set a limit on the amount you can borrow and have fixed rules for paying off the debt, usually requiring a minimum monthly payment.
Failure to clear your outstanding balance each month can result in high interest rates. However, some cards offer a 0% interest rate for new customers during the initial months to attract sign-ups.
As well as making purchases, credit cards have other benefits. They can be used to consolidate debts, earn rewards and cashback, and even boost your credit rating, which can help with future borrowing.
The main difference between a credit card and a debit card is that with a credit card, you are borrowing money from the card provider when you spend. It sits as a debt on your card until you pay it off.
In contrast, a debit card allows you to spend your own cash direct from your bank account. Although if you have an overdraft facility on your current account – you are also effectively borrowing from the bank when you go into your overdraft.
If you’re looking for a credit card, it’s quick and easy to compare with MoneySuperMarket. Our eligibility checker tool shows you the cards you’re most likely to be approved for by doing a ‘soft’ credit search, which won’t affect your credit score.