Whether you already have a credit card or are thinking about applying for one, it's worth understanding how credit cards affect your credit score. Used sensibly, a credit card can be one of the most effective tools for building your credit history. Used carelessly, it can damage your score and make it harder to borrow in the future. Here's what you need to know.

1. Payment history: the most important factor

Lenders want to see that you can borrow money and pay it back reliably. Every month you make at least your minimum payment on time adds a positive entry to your credit history. Every missed or late payment adds a negative marker that stays on your credit report for six years.

  • Setting up a Direct Debit for at least the minimum payment is one of the simplest ways to protect your credit score.
  • If you can afford to pay the full balance each month, you'll avoid interest charges while building a spotless payment record.
  • Multiple missed payments over several months can significantly damage your score.

2. Credit utilisation: the percentage that matters

Credit utilisation is the percentage of your total available credit that you're currently using. For example, if your card limit is £1,000 and your balance is £300, your utilisation is 30%.

Credit reference agencies and lenders generally prefer to see utilisation below 25-30%. If you're regularly using more than 50% of your available credit, it can suggest to lenders that you're over-reliant on borrowing — even if you're making all your payments on time. The three main UK agencies — Experian, Equifax, and TransUnion — each calculate utilisation slightly differently, but all penalise high usage.

  • Keep your balance below 30% of your credit limit where possible.
  • Consider making mid-month payments to keep the reported balance low.
  • If you have multiple cards, spreading spending across them helps keep individual utilisation rates lower.

3. Applying for a credit card: hard vs soft searches

When you submit a full credit card application, the provider runs a hard credit search. This leaves a record on your credit file that other lenders can see. A single hard search has a small, temporary impact — typically fading after a few months — but multiple applications in a short period can be a red flag.

Many providers offer eligibility checkers that use a soft search to show your chances of approval without affecting your credit score. You can also check your credit report for free through ClearScore (Equifax data), Credit Karma (TransUnion data), and MSE Credit Club (Experian data). Using these before applying is sensible.

4. Building credit with a credit card

If you have a limited credit history — perhaps because you're young, new to the UK, or have never borrowed before — a credit builder credit card can help establish a track record of responsible borrowing.

Credit builder cards typically have higher interest rates and lower limits. The approach is to use them for small purchases, pay off the balance in full each month, and build a positive payment history over 6-12 months. Read our guide on how credit reference agencies work to understand what appears on your credit report.

5. Closing a credit card

Closing a card can affect your score by reducing your total available credit (increasing your utilisation percentage on other cards) and shortening your average account age if it's your oldest account. If you're planning to apply for a loan soon, it's best to keep existing cards open and aim to keep balances low.

This guide is general information, not financial advice. Credit scoring models vary between agencies. For free, independent money guidance, visit moneyhelper.org.uk.