Credit Card

November 8th, 2013

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What is a Credit Card?

Credit Card is a plastic card issued by a bank, building society, supermarket etc., as the name suggests it is in effect a type of loan. When you use your credit card to buy desired goods and services you are normally borrowing money from your credit card provider.

Credit card providers usually apply a rate of interest (APR= Annual percentage rate) on the amount you withdraw or use to buy goods and services, or balance transfers from one card to another. They also have a minimum charge that has to be paid every month.

How to use a Credit Card?

Credit card can be used to pay for almost anything. Here are few examples:

  • Buy any goods.
  • Withdraw money from cash machines.
  • Balance transfer from one card to another.
  • Online purchases such as payment for holidays, utility bills and other goods and services.

However, as always, it is important that you manage your expenditure and debt as it can be easy to overspend on the credit card and then not be able to afford the repayment.

What is the cost of a credit card?

By law, all Credit card lenders are obligated to display the cost of borrowing as an APR (Annual percentage Rate) and they must update you when they make any changes to these rates. APR is applied on all purchases, cash withdrawals, balance transfers, annual fees and other charges. Currently APR rates vary from 6.9% to 39.9% across the credit card industry.

Balance transfer and how it works?

A balance transfer is the transfer of outstanding balances from one credit card to another. It allows users to reduce their credit card interest payments.

A 0% balance transfer card allows you to pay all your existing card debts without the interest from your previous credit card, hence giving you some breathing space from your existing card.

For example, assume that you had £3,000 on your current credit card and the debt is calculated at 20% APR*, than your current interest payment would be £600 per year. So, switching to a 0% balance transfer card can save you more than a few pennies in just interest cost. In this example you would be £600 better off.

However, it is important to note that the new credit card provider may charge a fee of around 1-4% of the credit card balance that is being transferred. Depending on the circumstances, this fee is typically a minute cost for the overall savings benefit.

What are the different kinds of credit card offers?

There are numerous credit cards available within the market. We have stated the most common below:

  • Balance Transfer Credit Cards
  • Purchase Credit Cards
  • Bad Credit & Credit Building Credit Cards
  • Cash Back Credit Cards
  • Charity Credit Cards
  • Long Term Balance Transfer Credit Cards
  • Rewards Credit Cards
  • Prepaid Cards
What is a 0% Balance Transfer Credit Card?

These cards are built for transferring current outstanding balances from one individual credit card provider to another which is offering a 0% initial rate of interest, for a fixed period. Some lenders offer 0% interest for up to 24 months, but they may charge a fee 1-4% for carrying out the balance transfer transactions. These types of credit cards are ideal for individuals looking to make balance transfers so that they may reduce the burden of the credit card debt.

What is a 0% Purchase Credit Cards?

0% purchase credit cards are built for buying goods or service at a 0% interest rate. The 0% is an introductory offer which usually lasts anywhere from 3 to 13months. These credit cards are ideal for people who are currently paying a high interest on their purchases and they can be really handy for the big one-time purchases such as fridges and washing machines.

What is a Bad Credit & Credit Building Card?

If you want to improve and/or recover your credit profile then these cards are made for you. You credit profile status is looked at when you make an application to borrow funds I.e. mortgage. Although these types of credit cards come with high rates of interest, which ranges from 19.9% to 39.9% typical APR, they do help you in improving your credit profile. These types of credit cards are ideal for consumers who have got a bad credit history or no credit history. To improve and recover the credit profile, balance must be cleared on time every month.

What is a Cash Back Credit Cards?

While buying any items or services, card holders can receive cash back offers. The cardholders can be rewarded, if they use the card for most of their purchasing. The rate of cash back ranges from1% to 5%.

What is a Charity Credit Cards?

These cards are for people who are interested in assisting a charity. Once you have received a charity credit card, the charity automatically receives between £5 and £25. From that point onwards, the charity organisation typically receives a small proportion of your daily purchases.

What is a Long Term Balance Transfer Credit Cards?

These types of cards are just like the 0% Balance Transfer cards, but they are in fact different as they don’t charge a balance transfer fee for handling the transactions and they offer low fixed interest rate for transferring balance. These types of credit cards are ideal for users who are seeking low interest rates on their balances.

What is a Rewards Credit Cards?

As implied by the name, Reward credit cards are intended for providing many rewards to the cardholders. These rewards include high-street shopping offers, Air Miles schemes, point schemes, shopping reward schemes and even cash back offers. In effect, card holders can convert their reward points for flight tickets, high-street vouchers and other gifts.

What is a Prepaid

Prepaid cards are used for spending and withdrawal purposes, whereby you are limited by the funds that you deposit. Typically, users prefer these prepaid cards when travelling abroad as they work out to be significantly cheaper and, they offer enhanced security benefits as it’s not linked to your bank account.

Where can you add funds to your prepaid card?
  • Post office branches
  • Banks
  • Building Societies
  • Any pay zone/PayPoint outlets
  • Online

There are various types of prepaid cards within the entire market as they all come with different terms & conditions and fee structures. As these types of cards don’t require any credit history check, they are also ideal for those who have poor credit profiles or no credit history.

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