Guide to credit cards

Unlike debit cards, credit cards are a type of borrowing. They enable you to buy things and pay for them later, either in one go, or by instalments, and can come in handy if used carefully.

Credit cards allow you to pay for goods, or withdraw cash, almost anywhere in the world.

They can be extremely convenient, but are best used if you want to borrow a small amount of money for a short time. But never think of credit as cash, or a substitute for cash. It's too easy to think of credit cards as an extension to your bank balance – make sure you stay in control. If you don't want to use credit a debit card might suit you better

Credit cards from RBS

Interest on credit cards

When you take out a credit card you will be given a credit limit – the maximum you can spend.

If you don't pay off the balance in full each month, you will have to pay interest. Remember, if you only pay off the minimum required each month, credit cards can be an expensive form of debt.

Not all cards are the same. Some incentivise loyalty. Some charge an annual fee, some don't. And interest and APR rates can vary a lot. Often you will be given an introductory interest rate, which may even be 0%, but always check what the rate will be at the end of the introductory period. Some card companies offer an introductory rate that rises dramatically at the end of the offer period.

It pays to do your research.

Purchase protection

Credit cards can be a good option for some purchases. Goods and services paid for by credit card that cost over £100 are protected by insurance. If the company doesn't fulfil your order, such as when a holiday airline folds, you'll have greater protection and could claim your money back.

Store cards

Store cards tend to be something that we agree to on impulse when shopping, and most often because there's an extra discount on whatever you buy if you take one out. They work in the same way as a credit card, but only allow you to purchase goods from a particular shop or chain.

Store cards can seem like a convenient way to pay for something you really want but don't have the money for, but they can work out to be very expensive, despite the introductory discounts, unless you pay them off in full by the payment due date.

Protect your credit score

Credit is used for more than cards – you might need it to buy a house or get a mobile phone contract, among other things.

Lenders can access a credit file that gives them information about your borrowing. If you want to see your credit file to help with your financial planning or because you have been refused credit, you can request a copy from a credit reference agency such as Experian.

The following can affect your credit rating in your credit file:

• Applying for credit too often
• Always having a big balance on you credit and store cards
• A history of missed or late payments

Remember, if your credit card company gives you a limit that's more than you want, or if they increase it without you requesting it, you can ask them to lower it. This is a good way to avoid the temptation to spend.

For more on credit scores see Borrowing

Credit card tips

• Know the APR on all your cards and pay off the most expensive first.
• Set up a Direct Debit to make your regular monthly payments to your credit card. That way you will not be liable for late payment charges.
• Try to avoid using credit cards for cash as the interest rate is likely to be higher than if you use it to purchase goods.
• It's easier to budget if you use one credit card rather than several. Pick one that offers good value and stick with it.

See the range of RBS credit cards.