Credit cards and why we need them

Credit cards were first launched in the UK over 40 years ago. Barclaycard was the first credit card in 1966 – Britain’s only credit card at the time. At first it operated like a charge card with the bill having to be paid off in full each month. The credit limit initially was £100.

Now there are over 1,500 credit cards to choose from and competition among card providers is intense, leading to a fragmented market with cards to suit users of all classes, financial backgrounds and credit histories. Almost anyone can be a credit card owner these days, and they make life more convenient for everyone. With a credit card you can borrow money for nearly two months without having to pay interest on it. If you were to use your cash wisely in that time you could make money at the same time as you’re borrowing it.

The wisest user of a credit card will pay the bill off in full every month so as not to incur any interest charges. However, if you can’t do that – for whatever reason – then there are deals available that can extend your credit-free period for much longer than the 50-60 days available as standard. There are some 0% interest deals available on purhases that can last for a year, but these are getting fewere and further apart. It is easier to find deals that allow you to transfer your outstanding debt from one card to another and get 0% interest for a year or more – although there is a usual a transfer fee of up to 3% attached, so look out for that.

The best use of a credit card is as a convenience – buying goods or services with it, and then paying off the balance in full when it’s due, thereby incurring no interest charges, but delaying payment for your purchases.

Credit cards also give you valuable rights to protect many of your purchases – a benefit you don’t get from paying in other ways, such as with cash. If you buy anything for a price from £100 to £30,000 on a credit card, then you have rights under Section 75 of the Consumer Credit Act, meaning that when you make a purchase with your credit card, your contract is the with both the vendor and the issuer of the card, and they have equal liability should anything go wrong. That means that you could take action against either of them to receive compensation. This can be very useful in the case of damaged goods or if a company goes bust. Such legislation also applies to part-purchases, and to tems bought by credit card over the Internet. Purchases on debit and charge cards are not covered in the same way, so it is best to use credit cards for purchases over £100.

Some card offer purchase protection for nothing, which covers you against items bought on the card being lost, stolen or damaged with a period of typically 100 days from purchase.

Another benefit offered can be prie protection. In this case if you see an item later on cheaper than when you bought it you are allowed to claim back the difference. This usually runs for 60 days, and claims can be from £10 to £1,000, but may be subject to a small excess. Your credit card may also offer free extended warranties or different types of travel insurance.

Applying for credit cards is fairly straightforward, but some planning may be required for you’re interested in a balance transfer. In an application lenders will use two main sources of information. These are what you’ve put on the application form and information helf about you by credit reference agencies. Therefore, the information on your application form must tie up with what’s on your credit history, so it’s really not worth “bending the truth”. Exaggeration of income is also not sensible as it’s your prudent use of the card that will avoid you getting into debt problems, so there’s no point in having one, or having a huge credit limit if you haven’t got the income to support it.

An application can take longer than you might think so it is worth preparing well in advance if you want to make a balance transfer as you don’t want the advantageous transfer period on one card to expire before you’ve got a new card with a new zero percent balance period.

Credit card companies do try to get everything sorted out in less than a fortnight, but it starts with your application form and your signature, so don’t delay, and get things right first time. Also, different pieces of information arrive at different times, such as your Personal Identifaction Cnumber (PIN) which will arrive under different cover to your card – and you can’t use one without the other.