What is a Credit Card?

07 Jul 2022 - Category: Blog /
credit card

Credit cards are a common find in almost any wallet or purse. They are a highly convenient means of paying in-store and online and can help build your credit rating. In 1966 the first UK credit card was issued by Barclays Bank, and its popularity has continued ever since. There are over 63 million credit cards issued to UK citizens at present, with data from last year showing 196 million credit card transactions in January 2021

In this article, we'll explore everything you need to know about credit cards, including:

  • How does a credit card work?
  • The differences between credit and debit cards
  • Eligibility criteria for getting a credit card
  • Understanding credit limits
  • What do the numbers on your credit card mean?

How does a credit card work?

A credit card is a direct line of credit offered via a bank or financial institution. Credit cards allow their users to spend money up to a predetermined limit. You get a monthly bill detailing your spending and need to pay off at least a minimum percentage of this each month.

It is highly recommended that you pay off your full credit card balance each month, but the minimum payment is a mandatory requirement. The card provider sets the minimum amount and is usually at least 1% of the balance outstanding plus any interest agreed and any charges that may apply. Some credit cards also have an annual fee which you have to pay.

If you pay your bill in full, you will never pay any interest on what you have borrowed unless the card has been used to withdraw cash. However, if you do not pay your bill in full, you will be charged interest backdated to the date of the purchase.

The difference between credit and debit cards

Credit cards and debit cards are almost identical in appearance, so, understandably, people may be confused and not be fully aware of the differences. Both cards feature 16-digit card numbers, magnetic strips and in-built EMV chips. They make paying in stores and online easy, but they do not operate in the same way.

Debit card transactions are only possible if you already have funds deposited in your bank. They are directly linked to your bank account. Credit cards are essentially a means of borrowing from your service provider. There are limits on purchases and withdrawals based on your credit limit, not the funds available in your bank.

Credit cards are often seen as a safer means of purchasing larger products or services. They offer advantageous consumer protection against fraud, though newer debit cards have better protections than they used to. When choosing between debit and credit card purchases, you must remember the fees and benefits connected to each.

Eligibility for getting a credit card

Whether or not you can get a credit card depends on your circumstances and situation. There are several factors taken into consideration, including:


The age you can get a credit card in the UK is 18 or over. This is almost always a prerequisite to applying for any credit card.


Credit card providers usually require applicants to be employed and earn a minimum amount. This will differ from bank to bank.

Financial history

Your financial history and track record with financial products and services can influence your chances of accessing credit. If you have been bankrupt or received County Court Judgements (CCJs), you may not be able to get a credit card.

Credit score

Lenders rely upon your credit score to gauge the likelihood of you managing your repayments. A low score or even a non-existent credit history can work against you.

These are the main factors any lender will consider before issuing a credit card.

What is a Credit Limit?

The credit limit on a credit card is that pre-set amount we've mentioned, determining how much you can spend on your card. Your credit limit is the maximum amount of money you can borrow on your credit card at any time. It is not static and may change over time.

Most consumers have an initial credit limit set by their provider. It often changes over time as your credit use is found to be responsible or not so. It is linked to your credit score and your repayments. Many people find they are offered an increased credit limit over time as they show they are responsible and regularly make their repayments.

Remember, you should only ever borrow what you can afford. It is easy to get drawn into a credit trap and pay off the minimum each month rather than your full balance, which can become costly.

What do the numbers on your credit card mean?

If you're new to bank and credit cards, the numbers on the front can be confusing. You need to know where the credit card number is and other key features so you can use your card online with no difficulties. Here are the most important numbers on your credit card:

Credit Card Number

Your credit card number is the long number on the front of the card. They are usually 16 digits but can be up to 19 digits. The number is unique to your card and differs depending on the card issuer. Mastercard numbers begin with a 2 or 5, while Visa card numbers all begin with 4 and American Express numbers being with 3.

Validity and Expiry Date

Some cards feature both a start and an expiry date, but most simply have an expiry date. The expiry date indicates when your card is no longer active, and a replacement will be sent out. Most credit cards are issued for 2 to 4 years.

Security Number

Mastercard and Visa both have a security number usually printed within the card's signature strip. It is just 3 digits and is often known as the CVV or CVC. This card verification code allows anyone you purchase from that the physical card is in your possession. It's only present on physical cards.

Credit Card Transactions with Small World

Using your credit card as a payment method with Small World is very straightforward. Once registered, you can choose the country where you want to send money and the amount. Like other online transactions, you can then simply enter your credit card details to whom the money is being sent, and it will arrive within a few minutes.

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