When it comes to spending, borrowing and avoiding charges, each type of payment card has different pros and cons. This guide tells you more about the main options.
There are two main types of card:
Which one suits you best will depend on your finances, and your personality too.
This could depend on whether you’re confident about paying off your card bills and disciplined enough to do so, or whether you feel more comfortable not getting into debt.
A credit card is a way to buy things now and pay later.
You can run up a bill up to an agreed limit and either pay it off in full at the next monthly statement, or repay over time as long as you make at least the minimum payment each month.
Who are they for? Usually only for people with organised finances – otherwise there is a real risk of spiralling into debt. Even if you set up a Direct Debit to pay the full amount monthly, if you are not on top of your bank balance you could go overdrawn when the payment comes out. They’re available to over-18s only.
A debit card is like a direct link to your bank account – when you shop or buy services the money is taken out of your account right away.
Who are they for? – almost anyone with a standard UK current account, though if you plan to use it overseas you should check the charges first.
They don’t have the same legal protection, but you might be able to claim under ‘chargeback’ (part of the card scheme rules) if you have problems with purchases.
Debit cards might be worth using if you are buying something that costs less than £100, as credit cards don’t protect you for purchases you make under this amount.
Store cards are a type of credit card you can only use in one chain of shops.
Who are they for? Only a good idea for people who often spend a lot in a particular store, and are absolutely sure they’ll pay off the bill every month.
Unlike store-branded credit cards, you can only use them in that store.
A prepaid card works a bit like a gift card – you top it up with money, and you can only spend up to that amount.
Who are they for? – often used by travellers to carry holiday money, and by anyone without a normal bank account – generally, teens and people with poor credit ratings.
Charge cards work a lot like credit cards – you buy now and pay the money back on your monthly repayment date.
However, with a charge card, you must pay off the balance every month. You can’t run up a bill and pay it back later.
Who are they for? – generally only for people on high incomes, who can afford to repay in full each month, or for business use.
There are also a few basic charge cards, but they don’t have much advantage over credit cards.
If you’ve been turned down for a credit card because you’ve got a poor credit rating, one way of rebuilding your credit history is to use a credit builder card.
But the interest rates are usually much higher, and if you miss payments or only pay the minimum each month, it could end up making your credit rating worse.
See recommendations for the best cards to rebuild your credit score on the Money Saving Expert website
There are more things you can do to improve your credit rating.
This article is provided by the Money Advice Service.