Figures released from the Credit Action, the UK money education charity showed credit card purchase transactions made every day in October 2012 amounted to a shocking total value of £1.424bn.
If like many of us you are struggling to understand credit card jargon or how to make the best of your plastic, then look no further as I’ll cut through the confusion to show you how your credit card works.
APR (Annual Percentage Rate) tells you the average annual cost of your borrowing over the term of the debt.
APR is calculated by using an assumed borrowing of £1,200, so it makes for easier and fair comparisons of credit cards. As such, lenders are legally required to inform consumers of the APR of any given product.
Are you still with me? If that hasn’t already thrown you off, there are two types of APR: personal and representative (formerly, typical).
Personal APR is fairly simple as this is the same interest for everyone. However, it’s representative APR that is used to advertise credit cards and this can vary depending on your credit score. Representative APR is the minimum that the majority of customers will pay, so in reality 49% of customers may end up paying a lot more.
TIP: Always check your personal APR once you have been accepted for a credit card.
Unlike most people, when I receive my monthly credit card bill, I look at everything aside from the minimum repayment due. Do you know why? By paying just the absolute minimum, it could take me years and cost me thousands of pounds to pay off a relatively small debt.
As the name suggests, a minimum repayment is the very minimum you are required to pay, but you are able to pay more should you wish.
TIP: Ignore the minimum repayment and repay what you can afford.
Balance transfer fees
If you’re looking to shift the balance of one credit card to another to benefit from low interest rates, you’ll probably have to pay a balance transfer fee. This one-off fee is usually hidden behind the eye-catching 0% interest headlines.
The balance transfer fee is a percentage of your balance, usually somewhere between one and four per cent, but is often capped to a maximum to avoid ridiculous charges.
TIP: Don’t forget to consider the fee as well as the interest rate when comparing balance transfer credit cards.
Reward credit cards
What’s better than an afternoon splashing the cash on your plastic? How about receiving cashback or other rewards for doing nothing more than hitting the shops? Some credit card companies reward their customers for using their card, but watch out because there are some downsides.
Reward credit cards often have a higher interest rate than standard cards and in some cases the rewards can be much less valuable than at first glance. Compare rewards credit cards to find the best deals.
TIP: Repay the balance immediately to maximise the benefits of rewards credit cards.
Have you heard of Section 75? This handy piece of legislation has helped me out of many a sticky situation in the past, so it’s high time you were aware of it.
Under Section 75 of the Consumer Credit Act 1974, both the supplier and the lender are responsible for protecting the customer if anything goes wrong. In plain English?
I bought a brand new, swanky television from a well-known electrical retailer around six months ago. Everything was going swimmingly until one day it wouldn’t turn on for love nor money. I planned to return it, but after going into administration the retailer is no longer accepting returns.
If I’d paid for my TV with cash or debit card, I’d have to bite my lip and accept the damage, but as I’d charged the £1000 to my credit card, I was able to get all of my money back. This consumer protection applies to any goods or services paid for with a credit card and costing between £100 and £30,000.
TIP: Always pay with a credit card for items over £100 and repay immediately to benefit from free protection.
Foreign usage fees
It may surprise you, but a credit card is actually one of the cheapest ways to spend abroad – provided it’s the right one.
The majority of UK credit cards charge a foreign usage fees when used abroad, including a currency exchange rate (loading) fee of around 3% and cash withdrawal fees, which are usually £3, sending the cost of your purchases sky high.
TIP: Avoid this charge by opting for a credit card specifically for overseas spending, compare credit cards here.
|Written by :|
|Jemma is a news & research reporter for compareandsave.com.Having worked as a journalist on a number of personal finance websites; she now spends time researching and commenting on UK personal finance stories and investigating new ways to help our readers save money.For press enquiries, please visit our Media Centre page.|