Explain credit cards to me as if I'm six years old.

[Phleghm]

I've googled, but shamefully, I still don't quite get it.
I have no debt. Have paid off mortgage, never had to take out a loan. Never had a credit card because it's felt like spending money I don't have yet iykwim?
I'm very very careful with money and have been saving for a long time to get a nicer home. But I've checked my credit score with Clear Score and I'm at about 375, which is shit. No debts showing, no CCJs. I'm thinking it looks like I have no credit history. (I paid off mortgage around 3 years ago so can they not see that? Was never late with payments etc.)

From reading online, it appears that getting a credit card would be a good way of building credit history. But I have no clue. If I pay it off in full every month, will there be a fee? Are there other ways of improving my credit history? I'm already on the electoral register.
TIA.

Pay it off in full each month...no interest charged.

Look for a cashback card. I have one and get .5% back on everything I spend. Most have no fee / interest if you pay in full before due date.

Amex do have a fee I think and maybe some with extra benefits.

I have had a credit card for 30+ years and have never paid a penny of interest. It is paid automatically by dd in full. I use it really just to manage cash flows. Just get one, use it for normal spending and set up a dd to pay it automatically and you will build up a good credit history without any additional charge (and may get money back if you choose a cash back card as op says). Interest rate becomes entirely irrelevant as you will never be charged it.

This is great, thank you! I wondered if there was a flat fee on top of the interest rate.

You don't necessarily need to have a credit card to build your credit score.

I do have one, though it's never been used (in fact it's never even left the envelope).

I do always use Klarna Pay in 30 Days for my online shopping. If you order a lot online, it'll work the same way, just no risk of fees. I order, select pay in 30 days and then I pay it once it arrives and I've decided I'm keeping it. (It's also good for ordering a few different sizes to try on!).

Why do you care about your credit score if you neither appear to need nor want credit? Further, lenders do not use the credit scores you see on the likes of Clear Score. Each lender has their own process for assessing potential borrowers and deciding if they align with the organisation's risk appetite.

You can get a lot of perks and protections with credit cards. If you don't want to pay any money go for a fee free card and ensure you pay in full.

I track my transactions on a spreadsheet and it gets added to my outgoings on the spreadsheet to balance so I don't unintentionally spend more than the cash I have in my accounts. I used to transfer the money as soon as it was spent but that is a faff and seemed pointless now we can make a little bit of money leaving the money in a savings account with interest until the balance is due. I like to be quite hands on with it. But you can just set up a direct debit to pay the balance in full if you're happy you won't spend more than you have, we put everything through the credit card as we collect Avios points so can have very big balances so I keep a very close eye.

As stated in the OP, I've been saving up for a nicer home. This may involve me getting another mortgage. It's useful to know that lenders won't use the same scoring system, thanks for that.

You should always pay for holidays and other big ticket items on a credit card, it gives an extra layer of consumer protection.

Credit scores are pointless, you don’t need to worry about yours unless you’re actively seeking to get a loan/mortgage etc.

Even then, the credit score is more of a guideline indication of how your credit history is likely to be reviewed and accepted; as most financial institutions don’t rely on credit score, they perform their own checks.

If you don’t have a history of defaulting on credit you’re usually OK.

Having said that, a credit card is a sensible idea for all the reasons stated above - number one being it gives you increased consumer and financial protection vs spending on a debit card.

Get a credit card that gives perks you like the look of and would use. I use one that gives me tesco Clubcard points. I put all of my spending on it, and have a direct debit to automatically pay it off each month. It costs me nothing, but gives me increased protection and also gives me a little bonus of extra Clubcard points.

The MSE website has a little “soft search” calculator where you can see the likelihood of getting which credit card, and can go from there. Financial institutions are usually wary of people with no debt, as there’s no indication of whether you’d use it responsibly, so don’t be surprised if you get offered a limited range with a low limit at first.

If you're in the UK, most credit cards don't have fees. If they do, it will be clearly stated.

If you use it for some of your normal spending, eg groceries or petrol, then set up a direct debit to pay it off in full every month, it will not cost you a penny, and demonstrate you are able to manage credit.

There are also lots of consumer protection advantages to using a credit card. For example, we got refunds from my credit card for the flights we lost when Monarch went bust 2 days before we were due to travel with them. They also paid us the extra cost of new flights that were far more expensive because there were thousands of people looking for new flights at very short notice in order to save their holidays.

You could also get a small amount of cashback and possibly an introductory voucher - look at somewhere like M&S or John Lewis if you shop there, or a supermarket.

As an aside, no-one has a defined 'credit score', it's just a made up number from the companies that provide the service and hope to make money by getting you to pay for premium services or sign up to products via them. But with no recent credit history, this could make it harder to get a good value mortgage, but you might be able to get one from your bank, as they see how you run your account - if you don't get a credit card from somewhere else, this could also be a good place to look for one.

Thanks everyone, this is so helpful (and thanks for not saying how ridiculous it is that I don't know this shit already.)
Another stupid question- what do they mean when they say balance transfers?__

You don’t need to worry about that as you don’t have existing credit card debt.

Balance transfers are when you transfer the balance on one card to another.

these are done by people who switch for a lower rate because they are a. making money on the credit balance by investing it elsewhere (stoozing) or b. Trying to take advantage of a better rate to reduce their payments (because they haven’t paid their balance off each month).

I wouldn’t worry about either of those scenarios in your case.

I was the same as you for ages OP, then in early 20’s went on a date with a finance guy who laid it all out for me.

I now have a credit card that automatically pays off each month for no fees as others have posted. I use this for my petrol and nothing else really, as I know it’s a consistent cost that will be going out of my funds anyway. As others have said, I also use it to book holidays and for big purchases.

I would also suggest getting one with zero charges on foreign transactions as this makes it useful for spending abroad- on our last big trip to the US we just used the credit card all week then paid it off when we got back with no charges for the dollar/pound difference.

Thank you so much everyone! I really appreciate your advice.

Just like @Dyrne we use a Tesco credit card. Never had any unpaid debt on it in over 20 years. The balance is paid automatically every month by direct debit. You literally get something for nothing. We use the Clubcard points online through Tesco partners and have had days out to places like Legoland which would have cost us £100 when the children were little, but was free using vouchers. It has paid for hotels abroad, RAC full breakdown cover, magazine subscriptions, I even bought a brand new stand mixer for around £50 instead of £400 on a boost deal they used to have. Anything and everything we can gets put on the card but we are fortunate to save then spend so always have the money to cover it and it earns points.

We are all about perks and benefits. It is the reason for things like reward cards, free starters, free gifts or reduced prices or free coffee weekdays at Ikea. There are lots of cashback credit cards or rewards credit cards. Again the added protection if you buy anything over £100 is the main reason to use one too.

If you can control your spending then getting one is fine, if you find you are over-spending then cut it up. Moneysavingexpert has lots of advice on which card.

Another good way to get a credit rating is to take a pay monthly phone account - and then Obviously keep it in good order.

can you tell I had a shit credit score a few years back and have almost obsessively built it back up. Now 999 on Experian <preen>

Trotting off to get a credit card so thanks for the question OP and PPs who responded. Do you have to have your main bank's one? If not, what do people recommend esp for zero charge when abroad?

Didn't know credit score envy was a thing, yet here I am...
That's a good tip about the phone, thanks! I'm on a recurring PAYG now so that will make a difference.

@crosstalk Halifax Clarity has no charges abroad (no you don't have to have your bank's one). I have 2 credit cards, one for abroad (rarely used) and one for Avios points. I only use the former for car hire deposits etc abroad because Chase debit card does fee free and 1% cash back. Im all about the rewards!!

Get one that gives rewards. We have an M n S and an MBNA. Set up a direct debit to pay it in full every month, then there is no risk of missing the payment date. We put everything on the cards and get over £100 a year in rewards.

Get a standard credit card. Pay it off in full each month. That is what increases the rating.