If you have one – and who doesn’t – you probably do not need reminding that credit cards offer probably the most common and popular form of borrowing.In the right hands, with the right attitude and approach, a credit card may present a safe and secure method borrowing, says the government’s own sponsored website, the Money Advice Service.
When it comes to money – and to borrowing in particular – however, many of us appear to be less than cautious or prudent in our spending. This may help to explain why so many people appear to experience quite so many difficulties in the management and control of their credit card expenditure. To help to keep you informed, here is our credit card guide:
Who might a credit card be suitable for?
To judge by the uptake of credit cards currently in issue, the resounding answer is likely to be a huge “everyone”.Whilst practically everyone might have and use a credit card, however, it might be more useful than not in the hands of:
individual spenders who continue to budget for their expenditure each month;
those who know just how much they have spent;
those who know just how much they need to repay – just as the Consumers’ Associations’ Which? magazine points out, your failure to clear your monthly balance on the credit card typically attracts a certain amount of interest, whilst a failure to repay at least the minimum amount may result in punitive charges.
What does a credit card typically involve?
The UK credit card market is highly competitive and this has resulted in a proliferation of many different types of credit card, aimed at different kinds of spenders and borrowers. Here is a selection:
0% balance transfers
just as the term suggests, this describes an arrangement with a credit card issuer who is prepared to charge interest at zero percent on credit balances transferred from a different card or directly in to your bank account (a fee normally applies to cover the admin of any money transfer and you will need to repay the balance on the credit card before the 0% offer ends);
the opportunity of avoiding interest charges on spending already accumulated makes a transfer to 0% balance transfer accounts especially appealing;
in order to attract new customers, some credit card issuers offer the facility of credit card spending without any interest charges for a given, introductory period – which may be anything from 3 to 18 months;
Cash back cards
as an incentive for using your credit card – and becoming more dependent on its use – many issuers offer the opportunity of gaining a cash back reward for every pound you spend on the card;
note that changes to the way credit card providers charge could mean that cash back cards eventually become obsolete;
Pre-paid credit cards
if you have a poor credit history or difficulties in managing repayments on your credit card in the past, a solution might exist in the pre-paid credit card;
just as the term suggests, this is a credit card, but one for which you have already paid the limit of any given expenditure;
use of a pre-paid credit card may be one of the ways of rebuilding your credit history and enjoying the flexibility of carrying plastic around with you rather than cash;
Low interest cards
it catches the headlines, of course, but the much vaunted low interest credit card is unlikely to be suitable for everyone;
the more likely beneficiaries are those who use a credit card relatively rarely.
Credit cards for people with a poor credit history
aimed at people who have experienced financial difficulty in the past, there are a number of credit card providers who will lend to people with a less than perfect credit history;
typically the interest rates are high compared to some other credit cards, so it is imperative that any balance is cleared in full every month;
these cards can be useful for people who want to rebuild their credit score, as, providing they meet their repayments on time, this will be reflected positively on a credit file.
Is there anything I need to know?
You may be aware already of the hard sell adopted by many credit card issuers to gain additional customers. What this means, of course, is that some of the costs of credit spending on your card remain hidden.
Probably the most important thing to keep in mind when using a credit card, therefore, is to know exactly what it is costing you, the benefits of repaying any outstanding balance at the end of the month, and the penalties you might end up paying if you fail to make at least the minimum repayment.
In this day and age it might be practically impossible to survive without recourse to a credit card as and when necessary. This does not mean, however, that you might want to forget just what it is costing you – now and well into the future