First we have to define a credit card. It is a financial agreement between you, the customer, and a finance company that will lend you money to pay for goods or get cash when you need them. For this service you pay interest on your purchases and have an obligation to the credit card company to repay the amount borrowed plus the interest in whole or part every month. There is a minimum amount you have to repay as a percentage of your balance. Credit cards are different from loans in that you can borrow what you like up to an agreed limit and make purchases at any time. Your balance may increase or decrease from month to month, and may be paid off in full.
A loan is a set amount you borrow to be repaid over a period of time along with interest at an agreed rate. The capital borrowed does not change and your balance will decrease month by month.
Credit cards get a bad press because they can be misused and cause a great deal of debt and hardship. However, used wisely they are a financial tool that can save you money.
You must be eighteen to apply for a credit card, and meet the criteria stipulated by the credit card company. This varies according to the type of credit card you choose and the company that provides it. All credit card companies are regulated by the FSA.
Choose your credit card wisely. Compare the best on the market to find the
one that suits your needs. Web sites such as which-credit-card-4u.co.uk or
finance.yahoo.com will give you the latest offers and interest rates. Many have
special deals for new customers. Look at the APR. This is the effective annual
rate you will pay on the money you borrow, but do remember that if you do
not pay it all off every month the interest you pay off each month will be less
than calculated, and the balance will be added to the money you borrow.
You should also look at the limit they set for you. This will depend on your credit rating and most cards start low and will increase the amount after you have made a few payments. Some cards offer a high limit at the outset but have restrictions.
Make sure the credit card company does not charge an annual fee. Most do not these days, with the exception of business accounts.
There are also cards for people with a low credit rating, and some companies offer a prepaid card, which you can top up when you have some spare cash. You pay a fee to purchase a card, and you do not need to have a bank account to own one.
You can apply for most cards online without the need to complete lots of paperwork.
2. You might be considering changing to another credit card company. It is a good idea if your credit card company charges are high. Use the comparison web sites to check out the best offers. Be wary of 0% deals that charge you a transfer fee. If your balance is substantial, find a card where there is no transfer fee. Some cards offer great deals with no transfer fee and a low APR but have restrictions on who can apply. You might find that a small transfer fee and low APR will suit you better. Do your calculations. Read the terms and conditions carefully. You can go to the credit card company through the links on the comparison web sites.
3. Plan your use of your credit card just as you would your monthly budget. Most cards will give you 56 days between payments and if you pay off the balance when you get your bill, you will not pay any interest. This means that you can do your shopping, buy your fuel or have a night out without exchanging any cash until you receive your monthly salary if you time it right. Most companies will ask you when you want to pay your bill each month.
The company you choose should offer you online banking facilities so that you can check your account when you want, with the facility to pay your monthly bill online.
4. Look for the credit card companies that have special deals with partner companies where you can make savings. For instance, if you book your annual holiday with some cards, you will get a substantial discount on the price of your holiday in addition to any discount the tour operator gives you. Other companies offer discounts on purchases.
Some credit card companies have reward or cash back schemes where you receive a percentage of the money you spend as vouchers to spend in high street retail outlets, on holidays, or receive cash.
You can choose a card that supports a charity and you can often choose a special design to suit your own taste.
5. Your personal insurance is a major expense for your holiday, and if you choose the right credit card you will get a free annual insurance for you and your family. There may be restrictions on its use so check the offers carefully.
6. Safety is a big concern, particularly when you make purchases on the Internet. It is better to use a credit card than a debit card because the credit card company protects you. If your purchase does not arrive or the goods are faulty and you are unable to get satisfactory reimbursement from the seller, your credit card company will refund your money.
If you are using your card in a shop CHIP and PIN is essential to protect you from identity theft. Your card contains a hologram and you use your Personal Identity Number for all purchases. No one else should have access to this number, making it virtually impossible for anyone to steal your card details. Always protect your PIN and keep it secret.
The best credit cards are those that you can use throughout the world and will
offer you protection for your money wherever you are. Check their customer
service in the event of loss or theft. Make sure they have a twenty-four hour
help line.
Check also that the company offers you identity theft protection. This is a big
issue and a growing problem. You need have no worries if you know that
your credit card company will alert you to any unusual activity on your card.
Some will phone you to verify your purchase, and make a note of the dates
you are away on holiday.
A credit card gives you security in the knowledge that you can always pay for something you need or get cash in an emergency. You must set your own personal budget if you are to manage it successfully, regardless of how much credit the company offers you. You will need to be able to make the repayments. Sensible use will enhance your lifestyle.