You Need To Know About Credit Cards
What is a credit card?
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
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
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
9) Exceeding Your Limit
You may also be charged a fee if you exceed your credit
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