How is your credit score calculated?
How do credit cards work
Think of a credit card as a tool – finding the right one can make things so much easier. Just like you make sure you have the best tools available before you start a DIY project, you should consider whether a credit card suits you before you apply, including its features, fees and charges.
Once you’ve chosen the right card for your situation, you can use online tools, like Barclays Money Tools (available to anyone signed up with Barclays Online Banking), and a bit of smart budgeting to take advantage of all the benefits it has to offer.
There’s a wide selection of different credit cards that you could apply for, but it’s usually better to consider your options and do a few checks beforehand so you know you’ve chosen the right card for your situation. Here are a few things to bear in mind before you choose to apply.
Know your credit score. Your credit score is useful for banks and lenders, as it shows them how much credit you have available and how much you routinely use. This gives them an idea how responsible you are with repayments. Credit scores are available from UK credit reference agencies: Equifax and Callcredit. If you’ve not checked your score before, here’s how to check your credit score.
Better score, better offers. A higher credit score could mean you’ll have the more options when applying for credit cards. For example, you could be offered a card with a lower APR, meaning you’ll pay less in interest if you carry balance. Find out how to improve your credit score.
Be selective with applications. Making too many credit applications in a short space of time could make credit reference agencies think you’re facing money troubles. If your credit rating is lowered as a result, this could mean future credit applications are less likely to be successful.
Use eligibility checkers. Before jumping in with both feet, you can use an eligibility checker to see if you’re likely to be accepted for certain cards. This kind of ‘soft search’ doesn’t leave a mark on your credit history.
Once you have an idea of what shape your credit rating is in, you can think about how you might end up using your first credit card. You might want to get a different type of card depending on whether you’ll carry or clear your balance each month.
Clearing your credit card balance means you repay the total amount borrowed before the grace period ends. This is the amount of time the lender gives you to pay off your balance after you receive your statement each month and before they start charging interest.
Carrying a credit card balance means you still owe part – or all – of a previous balance in the following months.
All credit cards have an interest free period, during which you can repay what you’ve borrowed without paying anything in interest. Some cards also offer another interest-free promotional period separate from this standard interest free period. This means you aren’t charged interest for a certain number of months even if you carry a balance.
If your card doesn’t have an interest-free promotional period, or if this promotional period has ended, you’ll be charged interest on the outstanding amount. It’s therefore important to make sure you understand the interest and fees of your new card.
If you’re someone who clears your balance every month you could benefit a Rewards card. These reward you for using your credit card, often in the form of points which you can redeem in major retailers. The flip side is that they can come with a higher interest rate than other types of credit card. But, if you clear your balance each month, this won’t affect you, so you can just enjoy the rewards!
Deciding whether you’re more likely to be a ‘clearer’ or a ‘carrier’ can give you an initial idea of which type of credit card is best for you.
For carriers, however, the higher interest they pay could mean the rewards aren’t worth it. So a card with a 0% interest promotional period, or one with a low APR – which is the total cost of the interest and standard fees charged over a year – might be more suitable. Check out What is APR? for more information.
Of course, nothing in life is black and white, so some months you might clear a balance and other months carry it forward. It can therefore be useful to know which of the main types of card are best for different uses.
Here’s a quick overview of some common card types. For more detail, you can compare our full range of cards.
Credit builder cards. If you don’t have a history of borrowing or your credit rating could do with a boost, this might be the card for you. It’ll probably have a lower credit limit and higher interest rate than others, but if used wisely, it should improve a bad credit score and pave the way to another type of card in the future.
0% purchase. Thanks to their 0% interest periods, these cards can be good for spreading the cost of large purchases such as new appliances. As with other credit cards, Section 75 of the Consumer Credit Act gives you greater purchase protection when making purchases over £100. To get the most from 0% purchase cards, balances should be cleared before the interest-free period ends to avoid accruing interest charges.
0% balance transfer. If you already have an outstanding balance on a credit card, moving it to a 0% interest balance transfer card could make it easier to pay off. Balance transfers may be subject to a fee but if you keep up with your payments, the interest-free period could help you clear what you owe faster. Some cards have 0% interest offers on purchases as well as balance transfers.
Cashback and reward cards. These cards typically give you rewards as a percentage of the money you spend on them as air miles, vouchers or other perks. The interest rate tends to be higher than some other cards, so clearing the balance in full on time each month is important.
Once you have an idea of what type of card is best for your needs, you can compare specific cards against each other. Here are some features and figures to think about:
APR. If you carry a balance, getting the card with the lowest APR is important so you pay less interest.
Annual fee. These are usually only a good idea if the benefits outweigh the costs, which include the annual fee, interest and any other charges.
Introductory interest rate. A card with a low rate or interest-free introductory period can give you a head start on managing your money. Check how long the interest-free period lasts and what the rate will be once it’s over.
Rewards and benefits. Getting a credit card that has rewards sounds like a no-brainer, but if you don’t think you’ll use the benefits that come with the card, it could be better to choose one without them – it might have a lower interest rate.
Minimum repayments. These are the lowest amounts you can repay each month to avoid additional charges, such as late fees, that are applied on top of the interest you pay on your monthly balance. They differ by credit card company and are worth bearing in mind when you get your new card. It’s always best to pay more than the minimum.
Here’s a few tips on making your shiny new credit card work for you.
Getting your first credit card can be exciting, but it’s best to not go over the top in how you change your spending habits. To start with, consider only using your credit card for one type of expense, such as food shopping. This can make your bill more predictable and easy to pay off, which can help build your credit rating and increase your credit limit. It’s also a good idea to resist the temptation to get another card straight after your first one. Otherwise, credit reference agencies could get the wrong idea about your financial situation.
If you’re new to borrowing using a credit card, check out our simple guide to understanding credit.
Try totting up the total amount you spend each month, how much you earn and the amount you save. How do repayments on your new credit card fit into your budget? The Barclays Budget Planner can help you calculate your approximate monthly disposable income to figure out how your repayments will fit in with your other monthly commitments.
Setting up a direct debit to automatically pay your credit card bill could make you less likely to miss a payment, as long as you always have enough in your bank to cover the full amount. Barclaycard lets you choose the due date of your bill through Online Servicing. Conditions apply.
It might be tempting to request a high credit limit in your application so you have more freedom to spend, but the amount you ask for could affect your chance of being approved by the lender.
It’s usually best to avoid going so low that you don’t have enough credit to get by or are always near your limit. Likewise, don’t go with a credit limit that is so high that it hurts your chances of approval or tempts you to overspend.
You can see your Barclaycard credit limit and request a higher or lower amount through Online Servicing.
These days you don’t have to wait until you get your credit card bill through the post to know what you’ve spent, how much you owe and how close you are to your credit limit.
You can keep on top of your account by using online banking and banking apps to check up on your money at any time.
The Barclaycard app lets you pay bills, check your balance, discover your credit score, transfer your balance and more – all with just a few taps. Terms, conditions and restrictions apply. You must have a Barclaycard account and be aged 18 or over to use the Barclaycard app.
With so many credit cards on offer, it can be tempting to keep things simple by just grabbing the one with the lowest interest rate. But taking a bit longer to compare features can pay off in the long run.
The best card for you is the one you can use without going over your limit, then pay back in the fastest and most affordable way. While doing so, you get to build your credit history, protect your purchases, and – depending on the card – enjoy a few other perks along the way.