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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
MORE RESOURCES:
Credit - Google News
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