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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.
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.
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:
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.