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UK Credit Card Guide

Credit cards are a form of loan and provide one of the easiest ways of borrowing over a short period.  A credit card is used to make payment for goods or services, or to withdraw cash. The cost of these payments is initially met by the company providing the card (they in effect lend you the money), while the cardholder is required to pay back at least a minimum amount of any outstanding costs each month.  

Card issuers will usually stipulate a minimum monthly payment of around 5 or 5% of the outstanding balance on your card. But you can clear the whole balance if you have the resources.

Cashback? No fee? Introductory Rate? Cheap rate? Which is the best overall?
Rates are lower than ever - and the choice is growing all the time. But few people bother to shop around and most end up paying unneccessarily high interest or charges. 

There's no easy answer to which card is the best - it depends entirely on you and how you use your card.

I clear my balance every month, what type of card should I opt for?
If you always pay off your bill in full every month, then it doesn't matter to you how high the interest rate (APR) is because you will never have to pay it. If you fall under this category, then go for a card which offers you some kind of loyalty bonus such as cash-back scheme.

I do not usually settle my account in full at the end of each month, which card is suitable for me?

Then shop around for a card with a low interest rate - many of the big name cards from UK banks still charge high interest. But remember that, in reality, you never get something for nothing. Cards with very low interest rates can have a sting in the tail. These may include fines for paying your bill late, or for going over your credit limit. There can also be catches such as charging you interest immediately on a new purchase if you didn't pay off your last bill in full.

Are there any special deals on offer?
Yes. Many cards offer special balance transfer and new purchase offers to attract new customers. These may give you the opportunity to pay off debts from another credit card with a high APR, at a reduced or interest free rate for a specified period. There are a number of cards on the market now offering 0% interest, generally for around six months, with a few offering up to nine months interest free. But be aware the reduced rate may not apply to new spending, only to the transferred balance. 

Why would anyone pay almost 20% when they could get a 0 per cent card?
No card company is going to offer a zero rate indefinitely. These are "teaser" rates, to attract new customers. After the introductory period, you're switched to a the standard rate. This may be more expensive over the long-term than a card that charges slightly higher introductory rate but a lower standard rate. 

Can you change cards, even if you have big debts?
Yes. By moving your current credit card debts to a lower-charging card you could save yourself a lot of money. Be careful though; some of the intro rates are often only for transferred balances, not for new purchases. If you want to make purchases with the new card, go for a card that offers an interest free rate for purchases as well as balances transferred. 

What's to stop me switching cards when I come to the end of the introductory period?
Nothing. It is possible, subject to credit rating, to move any debt around every six months or so to continually benefit from introductory offers. 

Could this damage my credit rating? Aren't credit card providers reluctant to lend money to people who continually change cards?
Card issuers can't tell how many cards you have had in the previous year or two - or how many you hold. But they can see how many other companies have run credit searches on you. If they deem this number to be too high, they may refuse to lend you money.

Most credit card companies are extremely reluctant to discuss how they "credit score" potential customers. Those prepared to do so say that the number of credit searches should not by itself affect lending decisions. But, coupled with other risk factors - such as debt problems, or frequent address changes - searches could lead to your being refused credit.

Do interest-free periods vary?
Yes. The best cards give you a maximum of 56 or even 59 days between buying something and having to pay for it. But some of the very cheapest credit cards do not even have an interest free period at all!

Is there any real difference between Visa and Mastercard?
No - indeed many firms offer cards from both companies. 

Can I get cash on my credit card?
Yes, but you pay a steeper interest and the bill starts clocking up straightaway; there's no interest-free period as there usually is with purchases. This also applies if, for example , you use your credit card to pay for foreign currency.

Are any other charges levied on credit cards?
There are a host of charges that can bump up the cost of borrowing significantly. Some still charge an annual fee. Most charge for late or missed payments, over-spending your credit limit, or even requesting a new statement.

These charges can be hefty and easily outweigh lower interest charges if you incur them on a regular basis. 

Disorganised customers may find they pay less in the end with one that has no extra charges even if the interest rate itself is higher.

Why should I use credit cards for large purchases?
Because of section 75 of the Consumer Credit Act. This makes the card company liable (along with the seller of goods or services) in case of breach of contract. So if you don't get the goods you ordered, for example, and the firm goes into liquidation, you should be able to get your money back on your credit card.

Purchase protection schemes run by the card companies - in addition to those legally required by by section 75 of the CCA - require you to spend 100 on one purchase to qualify for this very valuable protection.

But be careful, it doesn't apply to most debit cards, such as switch and delta, where the money leaves your account automatically.