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A credit card is means of payment which allows you to borrow money from the credit card provider each time you use it. Credit cards are accepted in hundreds of thousands of shops, restaurants, gyms etc all over the world.
When you use your credit card to buy things, you normally get an interest free period. If you repay the full amount outstanding each month, you won't ever pay any interest. If you make a partial repayment, the provider will charge interest on the outstanding amount. Any amount outstanding is a form of debt, so make sure you're in control.
You can also use your credit card to take money from ATMs or transferring money to your current account. There is usually no interest free period for these ‘cash transactions' so you get charged interest straight away.
Your credit card provider will give you a credit limit which you need to keep within.
Different Types of Credit Cards
Although they work in a similar way, credit cards can be used for different purposes.
- A 0% balance transfer offer allows you to transfer outstanding amounts from other credit card accounts you have and pay no interest for a given period.
- A retail purchases incentive will mean that you pay low or no interest on anything you buy with your card for a given period. This won't include ‘cash transactions'.
- A foreign usage card allows you to make retail purchases overseas at no additional cost.
- A store card acts just like a credit card but can only be used in a restricted number of retailers.
There are also a range of rewards available for using your
credit card.
- Cashback credit cards, let you earn money back, usually for each retail transaction.
- Donation credit cards provide an income to the relevant charity or club that sponsors the card.
- Rewards credit cards earn you reward points or air miles each time you spend on your card.
How Credit Card
Providers Make Their Money
There are various ways that providers of credit cards make
their money;
- Interest on outstanding balances and cash transactions.
- Fees for balance transfers, withdrawing money from ATMs and other cash transactions
- Late payment fees and other penalties eg for bounced cheques
- A proportion of each purchase you make, called the interchange fee, part of which also goes to either VISA or MasterCard, depending on the card type.
Choosing the right
Credit Card
Compare credit card best buys for the current best
deals around. Our credit card money saving tips will also give you some
useful pointers.
The golden rule is don't use your 0%
balance transfer
card to make retail
purchases. With the vast majority of credit card
providers this will cost you in interest due on the purchases.
What to do next
Make sure you understand the things to watch out for
when choosing a credit card and the range of key factors to consider in
your decision about which credit card is right for you.
Take a look at our range of guides for the pros and cons to
each type of credit card. Just click on any of the links on this page to find
out more.
Take a look at the latest credit card best buys to
check the latest rates and deals on offer.
Related Links
Looking to switch credit cards? Find out which is the best deal and how much you could potentially save with the help of our card search.
Make sure you are getting a good deal if you are planning on using your card abroad with the help of our foreign usage charts.
