A Beginners Guide to Plastic...

What is a credit card? A way to pay that also allows you to borrow money up to an agreed limit.

Why get a credit card? Paying by plastic can be easier and safer than paying by cash. Credit cards are generally accepted as payment anywhere in the world, whilst using your credit card to pay for a good or service costing £100 - £30,000 means you’ll automatically benefit from “Section 75” protection – so both the seller and your credit card company will be liable if what you’ve bought turns out to be faulty.

You can also use credit cards to borrow.

What type of credit card should I get?

A question to which there is no right answer. The card that is best for you will depend on what you want to use it for.

If you are sure to be able to clear the balance on your card each month, then the most important features will be the length of the interest free period and any cashback or bonus scheme – such as free Airmiles or a promise to donate to charity.

If there’s a chance you won’t be able to pay off your balance in full each month and so might use your card to borrow, you need to check how much this will cost you by comparing the interest rate on purchases. Or if you’re looking to transfer existing credit card debit, focus on the interest rate for balance transfers.

Alternatively if you spend a lot of time abroad, it might be worthwhile comparing the charges using your card overseas, including any extra fees for currency conversion.

You can get an idea of the cost of borrowing on each card by looking at the APR (Annual Percentage Rate). However this is no longer a foolproof way of comparing like with like as lenders now levy their charges in many different ways. Whatever card you choose, always read the small print to check you’re up to speed with its unique charges and conditions.

How do I get a credit card?

Once you’ve identified the card you want, apply! Before handing over your card (and potentially lending you money), your lender will want to check your credit risk. They’ll give you points for information on your application form and credit report that shows you’ll be able to service your debts. Based on your overall score, they’ll decide whether to give you a card and where to set your credit limit.

How do I use a credit card?

Once your card has been activated, you can use it to pay for goods and services and take out cash on credit, up to your agreed limit. Each month you’ll be sent a statement showing how much you’ve spent. You can then choose whether to repay the minimum amount or clear the full balance.

Be aware that if you don’t clear the full balance, you’ll pay interest on any amount left unsettled. Note that cash withdrawals tend to be charged at a higher rate of interest than other transactions, often from the moment you take out the cash. You’re also likely to be charged for exceeding your credit limit or failing to make the minimum payment. These charges will vary from card to card, but will be specified in the terms and conditions.

How do I avoid credit card fraud?

Check your monthly statements for suspicious transactions, and report anything you find to your credit card company immediately, checking whether you need to confirm your report in writing. Don’t write down your pin or password details and shred rather than throw away any unwanted documents showing your bank details.

Adela Read
Financial Journalist

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