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:
- 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.
- A charge
card where you have to repay the full amount
at the end of each month.
- 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
credit card means you don’t need to
carry huge amounts of cash around and risk
losing it.
- A
credit card means you can buy items over the
internet.
- A
credit card means you can make purchases
abroad without having to worry about local
currency.
- A
credit card gives the opportunity to spread
the cost of a large payment over several
months.
- 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:
- APR
(Annual Percentage Rate)
This is the rate
of interest that you will pay on any
outstanding balance.
- 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.
- Balance
Transfer Rate
Card issuers may offer
you a lower rate of interest if your swap
your balance from another credit card to
theirs.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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 your
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:
- Take good
care of your credit card to ensure that it
isn’t lost or stolen.
- 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.
- 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.
- 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
- The issuer
should insure you against loss, misuse or
theft of your card.
- The issuer
may also insure your purchases for up to 100
days.
- Your
issuer may also provide protection against
you being sold unsuitable or shoddy goods.
Important
Points To Remember:
- Credit
cards can be a very useful tool to help you
to manage your finances.
- Choose
your card carefully, remembering to read and
understand all the terms and conditions
before you sign up.
- Remember
to set yourself a budget and decide how much
you will pay off each month.
- Check your
statements carefully each month.
- Look after
your card to prevent it being lost or stolen.
For the summary
details of the latest offers on UK credit cards
please visit http://www.1st-uk-credit-cards.co.uk
________________
About
The Author
Phil Edwards is
a Business analyst in the city of London, freelance
writer for several finance magazines and websites and
co-owner of http://www.1st-uk-credit-cards.co.uk and http://www.1st-uk-bank-accounts.co.uk.
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