How credit cards work

If you’re thinking about searching for a credit card, you might have a few questions, such as:

• How do credit cards work?
• What’s a credit limit?
• What is credit card utilisation?
• How is the interest rate on a credit card decided?
• How much does a credit card cost?

We hope the information provided in our guide will help you feel more confident about searching for and comparing credit cards.

What is a credit card?

A credit card works in a similar way to a debit card in that you can use it to pay for goods and services online or in-store. However, there is one crucial difference: when you spend using a debit card, the money is taken directly from your bank account balance, whereas when you use a credit card, you’re borrowing money from the credit card provider.

How do credit cards work?

Wondering how to use a credit card? We’ve outlined the basics in four simple steps below.

1. Use your credit card to cover the cost of a purchase. Most major credit cards can be used online and in-store.
2. Each month, your provider will send you a credit card statement. This will include details of any transactions you’ve made; your balance, including any interest you’ve been charged; and the minimum repayment amount due.
3. If you have an outstanding balance on your credit card account, you’ll need to make at least the minimum repayment due. Where possible, you should try to pay more than the minimum repayment, as this will reduce the amount of interest you’re charged.
4. Interest will accumulate on your balance. If you clear your balance in full and on time each month, you won’t be charged any interest.

Good to know: confused by your credit card statement? You might find our article, Credit Card Statements Explained, useful.

What is a credit limit?

Your credit limit is the total amount of money that you can borrow on your credit card.

Please note that a credit limit should never be viewed as an incentive to spend money when you don’t need to or can’t afford to repay.

You should stay well within your credit limit. If you attempt to spend more than your available limit, your transaction is likely to be declined.

How will my credit card credit limit be decided?

The credit limit you’re offered will depend on several factors, including your income and credit score. Your provider will want to be sure that your credit limit is both affordable and manageable for you.

What does credit card utilisation mean?

Credit card utilisation is the amount of money that you’re currently using of your overall credit limit.

Here’s an example.

• Your credit card has a credit limit of £1,000.
• You use your credit card to make a purchase of £90.
• Your credit card utilisation is 9%.

Hoping to improve your credit score? Experian suggests keeping your credit card utilisation below 30%.

How much do credit cards cost?

The cost will vary depending on the type of credit card you’re approved for and the interest rate you’re offered.

When comparing credit cards, you should pay close attention to the Annual Percentage Rate (APR). The APR reflects the overall cost of borrowing over the course of a year, and includes the interest rate, as well as any standard fees, if applicable.

How will my credit card interest rate be decided?

The interest rate you could be offered will be based on your affordability and credit score. Generally, if you have a good credit score, you could find that you’re offered a more desirable rate of interest, although this is not guaranteed.

Some credit cards, such as 0% purchase credit cards, come with a promotional period of low or no interest spending. During the promotional period, you will not be charged interest on any purchases you make. It’s important to be aware that once the promotional period comes to an end, any balance remaining or any new purchases you make will be charged interest at your standard interest rate. You can view your standard interest rate in your credit agreement, which you’ll be sent during the full application process.

Should I pay off my credit card in full every month?

If you’re in a position to do so, you could pay off your credit card in full each month. If you clear your full balance on time each month, you won’t be charged interest.

How will a credit card affect my credit score?

A big part of learning how credit cards work is understanding how they can affect your credit score.

• When you apply for a credit card, the provider will carry out a creditworthiness assessment; this will include either a hard search or an Open Banking check. You should avoid making multiple applications for credit in a short period of time, as several hard searches carried out close together could harm your credit score. It’s also worth noting that a hard search will be visible on your credit file for up to 12 months.
• It’s important to make your repayments on time each month. A late or missed repayment will be reported to the credit reference agencies (CRAs), and your credit score will decline.
• You should avoid using your credit card to withdraw money from a cash machine. This is called a cash advance, and could harm your credit score.
• Staying well within your credit limit and keeping your credit card utilisation low could help boost your credit score.
• If used responsibly, a credit card could help you move towards a healthier credit position. Credit builder credit cards have been specially designed with this purpose in mind.

How does the thimbl Credit Builder Credit Card work?

If you have limited or poor credit history, the thimbl Credit Builder Credit Card could be a product to consider.

1. Use your thimbl Credit Builder Credit Card to make a necessary and affordable purchase.
2. Make at least the minimum repayment amount due on time each month.
3. Consider using other credit-building methods, such as paying your bills on time, checking your credit report for errors, and registering to vote at your current address.
4. Your repayment information will be reported to the CRAs, and over time, you could see an improvement in your credit score.

Check your eligibility for a thimbl credit card

Check your eligibility for a thimbl Credit Builder Credit Card in just 90 seconds, with no impact to your credit score.*

You can check your eligibility for a thimbl credit card if you:

• Are between the ages of 18 and 70;
• Are a UK resident with at least 1 year's UK address history;
• Have a monthly net income of at least £800;
• Have an active credit account that has been open for a minimum of 12 months; and
• Do not already hold a Zable credit card.

Lendable Ltd is unable to consider applications from anyone who has declared bankruptcy or is in an Individual Voluntary Arrangement (IVA).

Five reasons to choose the thimbl Credit Builder Credit Card

We’ve discussed how to use a credit card, and now we’d like to tell you a little bit about some of the things that make thimbl great.

1. Checking your eligibility will not impact your credit score.*
2. No pressure: checking your eligibility is completely free, and your quote is no obligation.
3. If approved for a thimbl Credit Builder Credit Card, you could access your virtual credit card the same day.**
4. The thimbl credit card comes with a personalised, manageable starting credit limit between £200 and £2,000.
5. As of September 2025, we’re delighted to have over 4,500 positive customer reviews!

What happens if I miss a credit card payment?

If your monthly repayment is made late or missed altogether, your provider could charge you a fee. Your credit score could also be negatively affected.

If you’re struggling with your finances and are concerned about an upcoming payment, you should contact your credit card provider as soon as you can. The sooner they’re aware of your circumstances, the sooner they can help. They will be able to talk you through any solutions that could help your situation.

If you’d like to talk to someone about money or debt worries, please consider reaching out to any of the following charities and organisations for free, confidential and impartial advice: StepChange, MoneyHelper, Citizens Advice, and National Debtline.

*The thimbl credit card is powered by Zable. Zable is a trading style of Lendable Ltd. We’ll check your eligibility for a thimbl credit card using a soft search, which will not affect your credit score. If you choose to make a full application, a creditworthiness assessment will be carried out by Zable. This will consist of a hard search and a further check powered by Open Banking. A hard search will remain on your credit file for up to 12 months, and multiple hard searches within a short period of time could hurt your credit score. Any credit obtained upon successful application will be provided by Lendable Ltd. Please be aware that pre-approval does not guarantee acceptance.

**Access to your virtual thimbl credit card will be dependent on the outcome of further checks carried out directly by Zable, which will include a fraud check through Open Banking on a bank account registered in your name.