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 honored up to a certain limit.
2) A charge card 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.
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
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
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
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 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
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
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
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.