Barclays Bank first introduced the now familiar plastic card into the U.K with the Barclaycard. A credit card facility is an unsecured loan which is accessed by using the card for the payment of goods and services as an alternative to cash and cheques. The Barclaycard was followed by the "Access Card" which was a joint venture by the other major clearing banks at the time, to provide competition to Barclays.
Today there are many issuers of credit cards and larger retail organisations also issue their own cards - "Store cards".
FAQ's
How much should I pay off each month?
The credit card issuer will ask for a minimum payment, say 5% of the outstanding balance. The less you pay off the more interest you will be charged, and remember that generally speaking credit card interest rates are expensive. Credit cards are an easy form of borrowing but it makes sense to pay off the amount outstanding each month if you can.
How do credit card companies calculate interest?
There are several different methods adopted by credit card issuers but generally speaking you will be charged interest each month on the outstanding balance of 1% to 2% which gives an annual percentage rate of 13% to 25%.
Some cards offer lower interest rates for higher usage. Some card issuers also make an annual card fee which can range from £10 to £100.
Can I get an interest free loan on my credit card?
Provided you have a credit card that does not charge interest from the date of the transaction, debit charges only arise from a statement's date and if you do not settle in full on the payment date. You can obtain 56 days interest free credit as the earliest transaction debit could be up to 31 days before the statement and credit card companies offer a further 25 days for you to make the payment.
What about cash withdrawals on my credit card account?
You can obtain cash on your credit card but unlike purchases for goods and services most card issuers will charge you an up front transaction fee at the rate of, possibly, 1 ½ % of the amount withdrawn. But when you purchase goods the store pays the card issuer a commission on all "card sales" ranging from ½ % to 3% depending on the agreement between the Issuer and the Store.
Do I get any other benefits when using a credit card?
Yes. The credit card issuer is jointly liable with the supplier of the goods or services you buy if the item you have purchased is faulty. This provides an alternative means of compensation ( the credit card company) if the supplier refuses to pay. In addition many cards give free (limited) travel insurance when using a credit card to purchase holidays, airline tickets etc
Should I apply for a VISA or MASTERCHARGE card?
Today there are hundreds of cards on the market with different terms and conditions. Most transactions are operated through VISA and MASTERCARD who have an extensive international coverage. They are equally acceptable at most retail outlets.
Which card is right for me?
People's credit rating and needs vary but generally speaking a card which is not subject to an annual fee and which offers a long interest free period and a low actual interest rate on outstanding borrowings provides a flexible and useful financial tool.
Finally
Credit Cards are very useful but you can easily run up a large balance and the interest rate charged on credit cards is generally much higher than other forms of borrowing. Remember to look for the best rates and read the fine print carefully.
Don't get confused between, debit, charge card and credit cards. The debit card is linked to your bank account. Transactions are debited to your bank account rather like a cheque, although the cheque will take longer to be debited to your account. A charge card is very similar to a credit card except that you must settle the amount outstanding in full each month. Credit cards are a method of borrowing and are subject to a maximum credit limit and a minimum monthly repayment.
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