Know your credit card

We all love our credit cards in Britain, the convenience, the delayed payment, the simplicity. Indeed, credit in the UK is running at its highest levels. Nevertheless, it still remains that the best way to use a credit card is to pay it off in full every month if you can. Many people possess more than one credit card, and people are always on the look-out for better deals. There are thousands of credit cards out there and the choice can sometimes seem a little overwhelming. What are the key points to look for when choosing a new credit card?

Inevitably different deals will suit different people and the right card for you will depend on your circumstances and how you are going to use the card.

Paying off your bill in full every month will mean that the interest rate on your card will not matter to you because you will never need to pay it. If you do this, then it is best to choose a card with no annual fee or one that will give you some sort of loyalty points or bonus scheme such as Airmiles or cashback.

If you know you won’t be able to clear your balance every month, then you are best advised to look for a low cost card that will give you 0% interest on balance transfers and purchases. Cards can provide their users with interest-free credit simply with the deal between purchases and payment. This can be as long as 59 days. However, some of the cheapest credit cards do not even offer this sort of period, so take care in choosing.

Zero percent balance transfer cards enable you to transfer a large balance from an existing, expensive card to a new cheaper card. There are many of this type of card, offering 0% interest on balance transfers on periods such as six months or even a year in the best cases. However these cards often come with a balance transfer fee, which can be up to 3% in some cases, so be aware of that. Additionally, 0% interest usually only applies to the transferred balance, not to new purchases, and they’ll assume any payment is for the balance, not the purchases, so you may build up interest on your purchases unwittingly. The bottom line should be to use such a card for balance transfers – and not for purchases. Finding a 0% card for purchases is not easy, but there are some for a few months, though an annual fee may be attached. Some providers waive the annual for the first year; some cards offer free purchase protection insurance.

Cash can be withdrawn from an ATM using a credit card or by writing a credit card cheque to yourself. However, these attract higher interest and they attract the interest immediately – no interest-free period for cash. The same rules apply to buying foreign currency.

One of the best advantages of a credit card is that it offers extra consumer protection by Section 75 of the Consumer Credit Act which makes the credit card company equally liable with the provider of the goods or service it there is a breach of contract. This includes the service or goods provider going into liquidation, for example. In such a case you should be able to get your money back, so long as you spent more than £100, which is the lower limit for this excellent protection.

Pretty much all credit cards will charge you if you miss the deadline for your monthly payment – typically £20. In some cases lenders also take away special low rates. To avoid such a penalty the best idea is to set up a Direct Debit payment from your bank account to pay off at least the minimum each month. In this way you won’t fall foul of circumstances that would cause you to miss making a payment. If you spend over the top of your credit limit, you will also be fined. It is also worth looking out for the small print, such as interest charged immediately for a new purchase of your last bill was not paid off in full.

Affinity cards are special credit cards which are linked to organisations like charities. The charity receives a one-off donation which is normally about £5. Often, part of your spend also goes to the charity, around 0.25%. Many charities have set up their own branded cards for this purpose, partnering a bank to do so. Football clubs have done the same, but the interest rates are not always the most competitive.

Status cards are those cards labelled gold or platinum or black. They charge a bigger annual fee to get some extras, such as preferential borrowing, and free annual travel insurance. This might be worthwhile if you do a lot of travelling. Status cards usually have a minimum income requirement.

Chip and PIN was introduced in 2004 to improve credit card security, and this has proved successful.