How do credit cards work?

A credit card can be a convenient way to manage your money. It allows you to pay for goods and services on credit and spread the cost over time.

When you use a credit card, you are borrowing money from your card issuer. Credit cards are usually issued by financial organisations such as banks and building societies.

Both credit cards and loans are forms of borrowing money.

With credit cards, you're given a credit limit and you can purchase up to that limit whenever you want. It’s up to you whether you pay off your statement balance in full each month or over time. If you spread the payments, you may be charged interest on what you owe, unless you are in an introductory interest free period.

With a loan, you're given a total amount of money up front and you pay it back over an agreed period of time with interest. This is typically each month until the loan plus interest is paid in full.

You can use a credit card to make purchases in person, online or by phone. The card has a long card number, expiry date and security code just like a debit card.

When you make a transaction, it is listed on your statement. If you've spent money on the card, you'll have a minimum amount you need to pay towards your balance each month.

A credit limit is the maximum amount you can borrow on a credit card at any one time.

Your initial credit limit is set based on various factors, like your credit history, earnings, existing debt and repayment history.

This is set when you open the account, but you can apply to change it. At Nationwide, we'll offer the maximum we're prepared to lend you, but you can choose to reduce the limit as part of your application.

If you make a purchase that takes you over the set credit card limit, the purchase may be declined. If it goes through, some providers may charge a fee and it could have a negative impact on your credit rating. At Nationwide, we don't charge a fee if you go over your limit.

If you don't pay off what you owe in full each month, you'll typically be charged interest on the outstanding amount, known as the balance.

You can find out the interest rate for your credit card by checking your agreement, using your online banking or contacting your provider.

Fees are usually charged because of how you use the card, if you do or fail to do something.

You can be charged for certain types of transactions, such as cash withdrawals and balance transfers.

Nationwide does not charge for buying things with your card while overseas. But individual sellers may apply their own charges.

Some providers (but not Nationwide) also charge a fee if you go over your credit limit or make a late payment. This could impact your credit rating too.

Some credit cards also come with an annual fee, usually to benefit from rewards like Avios points.

A minimum payment is the lowest amount you can pay towards your balance in a month.

You can and should consider paying more than the minimum amount to pay off your debt quicker and reduce interest.

When you receive your monthly statement, you will be told the minimum payment for that month and when it needs to be paid by.