What You Need To Know About Credit Cards
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.
A list of the current cards on offer in summary is available on this credit card summary page.
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.
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.
For a glossary of the terms mentioned in this article please visit the credit card glossary page.
Phil Edwards is a Business analyst in the city of London, freelance writer for several finance magazines and websites and co-owner of 1st UK credit cards and 1st UK bank accounts
Latest News
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 Hürriyet | Investment-Grade Credit Risk Index Rises to Record in Europe Bloomberg - Credit-default swaps on the Markit iTraxx Europe index of 125 companies with investment-grade ratings climbed as much as 7 basis points, and was 5 higher at ... Credit-default swaps soar Credit insurance costs soar to new high RLPC-European secondary loan prices slide to fresh lows |
 Washington Times | SEC Approves New Credit-Rating Rules Wall Street Journal - "The big three credit-rating firms have failed investors' and played a significant role in the current financial meltdown, said SEC Commissioner Kathleen ... SEC strengthens credit rating agency rules SEC adopts new rules for credit-rating agencies US SEC strengthens credit rating agency rules |
Avnet, Inc. to Present at Credit Suisse 2008 Annual Technology ... MarketWatch - chairman and chief executive officer Roy Vallee will present at Credit Suisse's 2008 Annual Technology Conference in Scottsdale, Arizona this morning at ... Microchip Technology to Present at the Credit Suisse Annual ... Brooks Automation to Present At the Credit Suisse Annual ... |
OpenClose, MeridianLink Partner to Provide Complete Credit ... MarketWatch - MeridianLink and OpenClose will enable brokers and wholesale lenders to request and access credit information from any Internet connection and deliver ... |
Bad Credit on the Rise: 110 Million Americans Now Affected ... MarketWatch - NASHVILLE, Tenn., Dec 04, 2008 (BUSINESS WIRE) -- The number of consumers with bad credit has risen sharply since 2007, with more than 110 million in the US ... |
Williams-Sonoma amends its credit agreement CNNMoney.com - NEW YORK (Associated Press) - Home-decor retailer Williams-Sonoma Inc. said Thursday it amended a credit agreement and a commercial letter of credit ... |
Nonbank Firms Like Avis Seek to Broaden US Relief on Credit Wall Street Journal - By JESSICA HOLZER WASHINGTON -- Commercial and industrial companies are clamoring for more federal action to unlock credit markets, saying that moves to ... Fed extends key credit programs through April 30 Fed lengthens lives of key credit programs Business Highlights |
Photronics Amends $155 Million Revolving Credit Agreement and ... MarketWatch - Under the amendment, the Company has through December 12, 2008 to finalize revised terms and conditions of the credit agreement. The Company also announced ... |
Egypt's EDB Bank gets $20 mln credit line Reuters - CAIRO, Dec 4 (Reuters) - Abu Dhabi's Arab Trade Financing Programme has extended a $20 million line of credit to Egypt's Export Development Bank EXPA. ... |
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