An ABC of credit cards

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APR stands for annual percentage rate and is calculated by taking into account the interest rate on a credit card and any other fees.

Credit card providers must display a ‘representative’ APR when they advertise a credit card offer, but in theory only 51% of people who are accepted for the card will be offered the representative rate. The remainder may be offered a higher rate. Find out more in our guide.

B - Balance transfer

This is when you shift debt from one credit card to another, usually to save money.

Many balance transfer credit cards offer 0% deals, allowing you to avoid paying interest for a set number of months. It’s important to clear your debt before the 0% deal ends, or carry out another balance transfer, so that you don’t start paying interest.

You’ll usually have to pay a fee for each balance transfer, calculated as a percentage of the amount involved. This might be in the region of 2%.

C - Credit builder card

A credit builder card is designed to help those who have a limited credit history or a poor credit rating. By sticking to your credit limit and making your monthly repayments on time, you’ll improve your credit score and prove to lenders you can borrow responsibly.

This type of card typically has a high interest rate.

D - Direct debit

It’s a good idea to set up a direct debit to pay off your credit card balance each month. That way you won’t miss a payment which could result in a fee and the forfeiting of any 0% offer you have.

Always pay off at least the minimum monthly repayment – more if you can afford to.

E – Eligibility

The very best credit card deals are reserved for those with top-notch credit ratings. Being rejected for a credit card can harm your credit score, so before you apply, use our Eligibility Checker to see which cards you have the best chance of being accepted for.

F - Foreign transaction fees

Many credit cards charge a foreign transaction fee of around 2.99% if you use them overseas. So if you plan to use your card on holiday, you should look for one designed specifically for overseas use – read our article to find out more.

G - Grace period

The grace period is the length of time between your statement date (when you received your last credit card bill) and the date your payment is due. Typically it’s between 21 and 56 days and so long as you clear your balance in full and on time each month, you won’t pay interest on your purchases.

H - Hard search

When you apply for a credit card, the lender will carry out a credit check (or ‘search’) to see whether you’re a reliable borrower.

If the lender carries out a ‘hard’ search, it will take an in-depth look at your credit report. This will leave a mark on your report, so other lenders will be able to see when you’ve applied for credit and whether you were accepted.

A ‘soft’ search is less thorough and will only be visible to you.

I – Introductory offers

Many credit cards come with introductory offers such as paying no interest for a set time or enhanced cashback or rewards. Make a note of when they end so you don’t get caught out.

J - Joint account holder

Some credit card accounts can be held jointly with someone else, giving you both equal access, responsibility and authority.

K - Key facts

A key facts document will explain more about the credit card you’ve chosen, including fees and how to manage your account.

L - Low rate card

Some credit cards charge a lower rate of interest than a standard credit card. Often this rate is for the life of the card, although as it is variable, it can still change.

M - Money transfer card

A money transfer card allows you to move money from your credit card to your current account. You can then use this to pay off an expensive overdraft or loan, for example.

N - No fee card

If you shift debt to a balance transfer credit card, you usually have to pay a fee which is charged as a percentage of the amount of debt you transfer. ‘No fee cards’ waive this fee.

O - Outstanding balance

This is the total amount you owe on your credit card, including interest and charges.

P - Purchase card

Many purchase credit cards offer an introductory interest-free deal for a number of months, which can make paying for a large purchase more manageable. Just make sure you clear your balance before the interest-free deal ends.

Q - Question set

Before applying for a credit card, you will need to answer a number of questions about yourself, including your name, address, income and what you’ll be using the card for (eg. purchases or balance transfers).

R – Rewards

Some credit cards offer rewards in the form of loyalty points at selected retailers, air miles or cashback. However, these cards often have high rates of interest, so if you want to use one, it’s important to clear your balance each month.

S - Section 75…

…of the Consumer Credit Act offers protection for purchases made on a credit card that cost between £100 and £30,000. So if the item you’ve bought is faulty or doesn’t turn up on time, you’re entitled to seek a full refund from your credit card provider. Find out more in our guide.

T - Temporary authorisation

This is a transaction that has been approved but is not yet showing on your account.

U – Unsecured credit card

The majority of credit cards are unsecured, which means you don’t need to put down a cash deposit as security. Secured credit cards do require a cash deposit, but are not very common.

V – Visa

Visa is a kind of payment system that supports the credit card market, with Mastercard being the other main player.

W – Withdrawal charge

Usually when you withdraw cash on your credit card you’ll be charged a fee of around 2.99%, as well as interest from the moment you take out your money. So it’s best to avoid withdrawals if you can.

X – ‘Xtras’

OK, we’re cheating a bit here, but…

Some credit cards do offer ‘xtras’ such as travel and gadget insurance, airport lounge access and car breakdown cover. You’ll usually have to pay a fee though (see below).

Y - Yearly charges

Some credit cards charge a yearly (or annual) fee, particularly those that offer competitive cashback or rewards or extras such as those mentioned above.

Z - Zap your debt at zero percent!

Using a 0% balance transfer card is a great way to help conquer your debt and clear it more cheaply and quickly. Just remember to pay off your balance before the interest-free deal ends.

Discover more credit card terms in our glossary.


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