Credit cards and overdrafts explained (UK)

New to this? Have a read of What is interest? first. It covers the basics from scratch in a few minutes.

How a credit card works

A credit card lets you borrow up to a set limit, then pay it back. Each month you get a statement showing what you owe and the minimum you have to pay. If you pay the whole balance by the due date, you usually pay no interest on your purchases. If you don't, interest is added to what's left.

The interest rate is shown as an APR. Credit card APRs are usually high, so a balance you carry from month to month gets expensive quickly.

The minimum payment trap

The minimum payment is designed to keep your account in good standing, not to clear your debt. Pay only the minimum and most of it goes on interest, so the balance falls very slowly. Paying even a little more than the minimum makes a real difference, and setting up a direct debit for the full balance means you never pay interest at all.

0% deals

Some cards offer 0% interest on purchases or balance transfers for a set time. They can help you pay off debt for less, but check three things first:

When the 0% ends, and the rate you'll pay after that.
Any fee, as balance transfers often cost a percentage of the amount moved.
The conditions, since missing a payment can end the deal early.

Built-in protection

Pay for something costing between £100 and £30,000 with a credit card, even partly, and the card provider is equally responsible if it goes wrong. That's called Section 75. It can help if a company goes bust or what you bought never arrives. Debit cards don't have Section 75, but your bank may be able to help through chargeback.

Avoid taking cash out on a credit card. It usually costs a fee and interest from day one.

How overdrafts work

An overdraft lets you spend more than you have in your current account, up to a limit. Since April 2020, banks have had to charge a single yearly interest rate on overdrafts, with no extra fixed daily or monthly fees. That made overdrafts easier to compare, but the rates are usually high.

An overdraft is best for covering a short gap, such as a few days before payday. If you're in it every month, it's worth making a plan to get out, starting with a budget. Some student and graduate accounts have interest-free overdrafts for a set time, so check when yours ends.

Credit and your credit score

Used well, a credit card can help build your credit history: keep your balance well below your limit and always pay on time. Missed payments, maxed-out cards and lots of applications in a short time can all count against you.

If debt is getting on top of you, free, confidential help is available from StepChange and MoneyHelper. Clearing expensive debt is Step 2 of the route, before you build a safety net.

Common questions

Do I pay interest if I clear my credit card in full?

Usually not on purchases. Paying the full balance by the due date each month means no interest on your spending. Cash withdrawals are different and usually charged straight away.

Is an overdraft bad for my credit score?

An arranged overdraft you stay within and pay back isn't usually a problem. Going over your limit, or being in your overdraft all the time, can count against you.

What is a balance transfer?

Moving debt from one credit card to another, often to get 0% interest for a while. There's usually a fee, and the normal rate applies once the deal ends.

Sources

We checked this guide against these sources on 13 October 2026. Rules and allowances can change, so check the latest position before you act.

This guide is general information, not personal financial advice. Read our full disclaimer.