How Credit Cards Work

Credit cards are small rectangles of plastic (2 x 3.5 inches, although some different shapes are now appearing such as the Mint Card) which can be used as a payment method instead of cash. Your details are printed on the front of the card, and the same information is held electronically on a black strip at the back. Newer cards may also have a metal square on the front which makes cards harder to 'clone'. You are also expected to sign the back of the card, which will be used as a security check every time a payment is made.

When making a payment, hand your credit card over to the retailer. They will swipe the card in their till, reading the information from the black strip. Once the retailer is happy that your credit card issuer has authorized the amount, a two-piece receipt will be printed showing the total amount owing. You will need to sign this, which will also be carbon-copied onto the second receipt behind. The retailer keeps one copy of the receipt as proof of payment, and you may keep the other one for your records.

The card issuer will send you a statement each month itemizing amounts spent at each retailer, and the total owing on your card. Depending on your issuer, you will either be expected to make a minimum payment (a percentage of the total owing), or pay the owing amount in full (usually for amounts below £10).

Normally you will not be required to pay interest on owing amounts that are paid immediately in full. However if an amount owing rolls into the next month interest will be charged at the current rate. This is shown on your statement each month and added to the total amount owing.

Card issuers almost always receive a percentage of every transaction, charged to the retailer. This is often between 2% and 5% of the transaction amount, or a minimum of £2.