There were almost 378 million credit card transactions made in the UK in August 2023, with cardholders spending a total of £20.6 billion.1 That's a glimpse of how embedded credit cards are in the financial lives of many people in this country.
This article includes tips, suggestions and general information. We recommend that you always do your own research and consider getting independent tax, financial and legal advice before making any important decision.
In this guide, explore what credit cards are, their potential benefits and drawbacks, and some important financial considerations around interest charges, responsible credit use, and credit scores.
A credit card allows people to buy goods or services up to a predetermined credit limit. When people use credit cards, they are borrowing money. The credit card provider will usually provide a monthly statement which shows their transaction history, a minimum payment that must be made and a payment due date (as well as other information). The customer can typically choose to pay off the full amount they have borrowed by the due date to avoid being charged interest or make a payment of a lower amount and carry the remaining balance over and potentially incur interest charges on the remaining debt.
People who own a credit card will usually receive a paper or digital statement monthly. These statements typically contain:
Credit cards could help people manage their finances. On the other hand, there are potential downfalls.
Here are some possible advantages to using credit cards:
Consider some of the potential drawbacks to using credit cards:
Choosing a credit card may boil down to how people intend to use it. Here are some examples:
Buying on credit involves using a credit card to buy goods or services, with an understanding that the amount spent will be paid back later. A potential benefit is the flexibility to make immediate purchases. However, this could bring a risk of accumulating interest if the full amount isn't paid by the due date.
Balance transfers entail moving existing credit card debt to a new card, typically with a lower interest rate. This may help individuals potentially save on interest payments. However, there may be transfer fees involved and a temptation to continue accruing debt on the original card.
Cash transactions involve withdrawing money from an ATM using a credit card. Some providers allow credit card cash withdrawals. However, there may be high-interest rates and potential cash advance fees associated with these transactions, making it an expensive form of borrowing.
Making timely payments, keeping balances low relative to credit limits, and having a mix of credit types may improve a credit score.
Mismanagement of credit cards through overspending, late payments, or high credit use could negatively affect people's credit scores. This may make access to other financial products more difficult or more expensive.
Credit cards may offer convenience and the potential to build credit when used responsibly. But they also come with drawbacks such as interest charges and a risk of overspending. The suitability of a credit card often depends on an individual's personal financial habits and needs.
In addition to credit cards, there are other forms of credit people can access, such as buy now, pay later. This payment method splits purchases across a number of repayable instalments but may be associated with fees, interest charges, and other potential risks.
Learn more about PayPal Credit.
If you accept cookies, we'll use them to improve and customise your experience and enable our partners to show you personalised PayPal ads when you visit other sites. Manage cookies and learn more