What You Need To Know About Credit Cards
By Phil Edwards
What is a credit card?
A credit card is a card that allows you to borrow money to pay for things.
There will be a limit to how much you can spend called your credit limit. At
the end of each month you can either pay off the whole of the amount you owe
or make a minimum repayment.
Other kinds of cards include:
1) A cheque guarantee card, issued by your bank, that you can use to ensure
that your cheque will be honoured up to a certain limit.
2) A chargecard where you have to repay the full amount at the end of each month.
3) A debit card, issued by your bank, where whatever you spend is immediately
deducted from your bank account
Do you need a credit card?
Using a credit card is a useful way of making purchases:
a) A credit card means you don't need to carry huge amounts of cash around
and risk losing it.
b) A credit card means you can buy items over the internet.
c) A credit card means you can make purchases abroad without having to worry
about local currency.
d) A credit card gives the opportunity to spread the cost of a large payment
over several months.
e) A credit card is useful in an emergency. For example, an unexpected repair
to your house or car.
How do you choose a credit card?
The main two UK credit card issuers are Visa and Mastercard. These are accepted
in most places and in 130 countries worldwide. Beware of less well known brands
that may not be accepted everywhere.
Before you choose which credit card is the best for you, remember to read the
terms and conditions carefully. Never sign up for a credit card without fully
understanding what you are agreeing to.
Remember that all the plus factors will be prominently displayed in large print.
You may have to study the small print carefully to discover if there are any
negative factors.
What You Need To Consider:
1) APR (Annual Percentage Rate)
This is the rate of interest that you will pay on any outstanding balance.
2) Special
Introductory Rates
You may be offered a low or 0% rate of interest for a limited time (Up to 6
months) when you sign up for a new card. A higher rate of interest may be charged
for cash withdrawals.
3) Balance
Transfer Rate
Card issuers may offer you a lower rate of interest if your swap your balance
from another credit card to theirs.
4) Interest Free period
Remember to check when interest payments will begin. Will you pay interest from
the day of the purchase? Or will you have a number of days interest free before
you begin to pay? There is usually no interest free period for cash withdrawals.
5) Cashback
and Rewards
Some cards over points or rewards for every pound spent on the credit card.
Make sure that these are appropriate for you. For example, there's no
use collecting airmiles if you never fly.
6) Minimum Repayment
Remember to check what the minimum monthly repayment will be. If you borrow
£1000 on your credit card the monthly minimum repayment will probably
be in the region of £25. But if you only pay this amount each month it
will take a long time to pay off the balance and cost a lot in total when you
include the interest payments.
7) Annual Fees
This is the fee that the issuer will charge you every year for using their credit
card. Not all credit cards have an annual fee, so remember to consider this
when you are choosing which one is right for you.
8) Late Payments
There will be an extra charge, as well as the interest owed, if your payment
is late. This charge may even be more than the amount you owe so be very careful
to check what the charge is, and to ensure that all your payments are made on
time. A good way of doing this is to set up a direct debit from your current
account.
9) Exceeding Your Limit
You may also be charged a fee if you exceed your credit limit.
Will Your Application Be Accepted?
Whether or not your application is successful will depend on your credit rating.
Your credit rating depends on your credit history (a record of your use of credit)
and is based on the record of your ability to repay debt.
You can obtain a copy of your credit file by contacting a credit reference
agency. There may be a small fee for this service.
When you application has been accepted you will be given a credit limit. The
credit limit will be fixed when you first apply for your card (although you
can ask for it to be increased or decreased later) and the limit, including
the amount you have left available to spend, will be shown on your monthly statement.
Insurances and Protection.
What You Can Do:
1) Take good care of your credit card to ensure that it isn't lost or
stolen.
2) To prevent misuse of your card you must report any loss or theft of your
card to the issuer immediately. Many issuers allow you to register all your
cards with them so that in the event of you losing a purse, handbag or wallet
they can all be cancelled with just one phone call.
3) You must keep all your receipts and also check your statement carefully
and report any suspicious transactions. For example payments that you have no
record of making.
4) Credit card companies are now issuing cards with PIN (Personal identification
numbers) which are known as Chip and PIN cards. Rather than signing your name
you will be asked to enter your PIN onto a keypad. You must ensure that you
keep this number secret.
What The Issuer Will Do
1) The issuer should insure you against loss, misuse or theft of your card.
2) The issuer may also insure your purchases for up to 100 days.
3) Your issuer may also provide protection against you being sold unsuitable
or shoddy goods.
5 Important Points To Remember:
a) Credit cards can be a very useful tool to help you to manage your finances.
b) Choose your card carefully, remembering to read and understand all the terms
and conditions before you sign up.
c) Remember to set yourself a budget and decide how much you will pay off each
month.
d) Check your statements carefully each month.
e) Look after your card to prevent it being lost or stolen.
About the Author Phil Edwards is a financial writer and author and manager of 1st UK Credit Cards and Cards for the UK
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