A credit card is a form of revolving credit, this is where a consumer has flexibility where they spend the borrowed money, within a preset limit. When a consumer has a credit card they can use it to spend on-line or in shops, and buy a wide range of products.
There are many credit card providers in the UK such as Barclaycard and Capital One, but also provided by the major banks.
How does a Credit Card Work?
Consumers have to apply for a credit card and when accepted for a credit card, the lender will provide you with a credit limit, this is the maximum you can spend on the card.
They will also tell you your APR/Interest rate, for example 19.9%, this is the cost that you will have to pay, if you do not pay off your balance (this is how much you have spend on your credit card) every month.
What is a Credit Card Statement?
This is a monthly overview of how much you have spend on your credit card, with a breakdown for each item bought. This will also outline any interest costs you must pay, and the minimum amount required to cover any debt still remaining on your credit card (your balance).
What are the different Types of Credit Cards?
Balance Transfer Credit Card – This is a credit card that you can move a balance to, from another credit card, often with low interest rates, which can helpful to pay off credit card debt over time at a low cost, for example after Christmas. These always have a time period, like 12 months, after this, interest will be charged. Any new spend on a balance transfer card will mean you are charged interest.
0% Purchase Card – This card means you can spend on the card and not have to pay interest charges for any balance built up on the card. These cards have limited time period like 12 months, after which you will be charged. This card can be useful when you need to buy items.
Cashback Credit Card – This card provides cashback when you spend on a card, for example normally, shown as a percentage, like 1% of your spend. This often builds up and is then paid to you once a year. These cards do charge interest, so it is advisable to clear the balance every month. An example is the American Express Platinum Card.
Incentive/Points Credit Cards – Examples of these include Tesco Points, which can be earned when spending on the Tesco credit card, or Airmiles, which mean you can get an airline ticket, when you build up a certain amount of ‘miles’.
How does a Credit Card protect me?
When you use your credit card to buys things with a value between £100 and £30,000, this comes with legal rights, under the Consumer Credit Act. This means if you receive a faulty product, don’t receive your product, your credit card company will step into recover the money.
What is the difference between a Debit Card and a Credit Card?
A debit card is linked to your current account, and when you spend on this, money comes straight out of this account, so often you need the money in your current account to spend with it, and this is used first, before your overdraft.
What is a Credit Card Number?
This is simply the long number on the front of the credit card. On the front of your credit card you also normally have an expiry date, which simply means when your credit card is no longer valid, or available for us.