Credit Cards

When choosing a credit card there are a number of factors to be taken into account. If you are not planning to pay off the outstanding amount each month then the most important factor will probably be the interest rate charged. Below is a list of interest rate issues which should be considered when choosing a card.

To find out how long it will take you to pay off your credit card have a look at our Credit Card Repayment calculator.

Introductory rates: many credit card providers are now offering introductory rates to attract new customers. The introductory rate can be as low as 0% and the introductory period ranges from a couple of months to a year.

When an introductory rate is quoted by a credit card provider, check the following:

How long does the introductory period last?
Is it until a specified date or for a set period after you receive the card?
Offers that specify a date can be deceptive as it takes time to receive the card and transfer the balance, eating up a chunk of the low interest period.
What does the introductory rate relate to?
Is it for transferred balances only, new purchases only or both?
what will the interest rate be after the introductory period?

If you are organised, it is possible to 'surf' the cards. In other words, you can transfer your balance from one card to the next in order to benefit from each card's introductory rate. Interest rates vary dramatically. As at April 2006, the standard APR (Annual Percentage Rate) on offer varies from 8% to 29.8%.
For More information on APR's click here.

Interest free period: does the card offer an interest free period? Most cards only charge interest from the statement date. Others calculate interest from the date of the transactions you make. [more details] What is the maximum interest free period? In most cases this is 56 days.

Cash withdrawals: the interest rate charged for 'cash advances' is normally far higher than the rate that applies to new purchases or transfers. If you tend to use your credit card for cash advances, what interest rate will be charged? Also, bear in mind that interest is charged from the date of the cash advance. No interest free period applies for cash advances, otherwise you would be able to borrow interest free indefinitely by using two cards and withdrawing cash on one to pay the other each month!

Balance transfers: most credit cards allow you to transfer a balance from one or more other credit cards. What is the interest rate applied to these balance transfers following any introductory period? You should only transfer a balance if it means you will pay less interest.

Gold & platinum cards These are credit cards offered to those who are considered a good credit risk, with a higher salary usually above £20,000 or £25,000. They generally offer a higher credit limit, a larger daily cash withdrawal limit and other additional benefits such as travel insurance, extended warranties for household appliances, medical insurance, card protection and hotel savings. To some they also provide a status symbol.

Donation cards: Each time the card is used the card issuers makes a small donation to a charitable cause, at no additional cost to the card holder. The 'charitable cause' includes recognised charities such as Oxfam, as well as football clubs, universities and many other organisations.

Store cards: These cards are issued by a shop/retail chain and can only be used in the shop/retail chain that issued them. On average they charge a higher rate of interest than regular credit cards and should be avoided unless you are able to pay off the outstanding balance each month. A recent NOP survey revealed that 75% of store card holders had no idea of the interest rate being charged on their store card, despite only one in three repaying their balance in full each month. However, they can be useful if the store does not take any other credit cards and can offer benefits such as discounts exclusive to card holders. Some stores also restrict the first few hours or the first day of their New Year's sales to card holders only.

Charge cards: These cards provide an 'account' against which withdrawals can be made to make purchases. The outstanding balance must be paid in full each month or heavy penalties are incurred. They are a form of credit/debit card hybrid which can be used in the same way as a regular credit card. An annual fee is normally charged which can cost over £100. American Express and Diners Club are the best known charge cards. In fact, other than these two companies, charge cards are only offered by banks to their existing customers. Charge cards usually offer additional incentives such as insurance, air miles and/or reward points. To some they provide a status symbol, especially the American Express Centurion Black Card. This charge card is offered by invitation to the very, very wealthy. It offers unlimited free credit although the outstanding balance must be paid in full each month.

Find out how to prevent credit card fraud here.

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