Credit cards: tool or trap?

Lesson 7 of 12 in our free Borrowing guide: a 5-minute money game with the key points below.

This lesson is in the full version.

Free with a code from your uni, college, council, landlord or employer (worth £600/year). Lesson 1 of Borrowing is free for everyone.

Questions you'll answer

Mo spends £300 on the card and pays the full £300 statement balance by the due date. How much purchase interest does Mo pay?

Direct debit set to pay the full balance → Good habit. Autopilot for zero interest on purchases.
Taking £100 cash out on the card → Costs you. Cash withdrawals usually have a fee and interest from day one.
Paying only the minimum every month → Costs you. Most of your payment goes on interest; the balance barely moves.
Keeping spending well below your limit → Good habit. Using a small share of your limit looks better to lenders.
Missing a payment → Costs you. Late fee, possible loss of promo rates, and a mark on your credit file.
Myth: “Your credit limit is extra money you've earned.” — It's how much you're allowed to borrow. Every penny is owed back.
Fact: “Paying the minimum keeps your account in good standing but can take years to clear the debt.” — No missed payment — but with interest, it's a slow and expensive road.
Fact: “Using a credit card sensibly and paying it off can help build your credit history.” — On-time payments show lenders you can manage credit.