Credit card basics
Credit cards are a convenient way to spend money. They're easier and safer to carry around than cash and can be used to make purchases almost anywhere in the world. You can use your credit card to make payments online and over the phone and with the roll out of the "Chip'n'Pin" system they are also increasingly safe from fraud.
Aside from the convenience, credit cards also offer the benefit of providing you with credit (hence the name!). This means you can spend money that you don't actually have in your bank account. By giving you a card, your credit card issuer is prepared to lend you a limited amount of money for a limited period of time as long as you pay it back.
If you can't pay the money back within the agreed time you will be charged interest, which is worked out as a percentage of the money that you still owe (this percantage is know as the interest rate). The longer it takes you to pay back the money the more interest you will be have to pay. As with any form of credit you need to be careful that you don't let the amount that you owe (i.e. your debt) get out of control.
Most people's first experience of a credit card is when they are issued one by their bank when they open a current account. However, there is a huge amount of variety in credit cards and you can usually find a better deal by shopping around.
Where to start
There are so many different credit cards to choose from, each with its own set of features, that it can be hard to know where to start.
The most basic point of comparison for credit cards is the interest rate or APR (annual percentage rate). This shows the amount of interest you will pay on your credit card balance. The lower the APR the less interest you have to pay.
Some credit cards offer a low "introductory rate" for the first few months, but then revert to a higher "standard interest rate" once the introductory period has expired. Some credit card companies offer rewards and other incentives for using their cards. Some credit cards waive certain fees that would normally be charged. In order to know which card is best for you, you need to think carefully about how you are going to use it.
The basic question to ask yourself is whether you intend to pay off your credit balance each month (see Paying off your credit card). If the answer is 'No', the most important thing to consider is interest rate. Go for the lowest rate possible and make sure it's permanently low.
If the answer is 'Yes', it's the "extras" that make a card interesting. If you want cash back on purchases find a card that offers that feature, if you travel then pick a card with no currency conversion charges. However always be aware of the interest rate – who knows what the future may bring.
As with all finance offers, TheMoneyFactor recommends you ALWAYS READ THE SMALL PRINT! Don't be carried away by what looks like a great offer without checking out the detail.
Credit card types:
Please note: TheMoneyFactor.co.uk makes every effort to ensure that all our information and the results from our calculators are accurate and current. However, we cannot guarantee 100% accuracy and cannot be held liable for any errors.
Nothing within TheMoneyFactor.co.uk website is, or shall be deemed to constitute, financial or other advice or a recommendation to purchase any product or service. Any and all information provided within TheMoneyFactor.co.uk website is for general information purposes only.
TheMoneyFactor.co.uk advises that you always check with the finance service provider before signing any agreement or purchasing any product.
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