Credit cards: the uSwitch guide

We explain everything you need to know about credit cards and how they can help you with your day-to-day finances.

You can compare credit cards with uSwitch and shop around for the best credit cards for balance transfers, bad credit, purchases and much more.

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For more information about some of the terms we use, you can click on some of the highlighted words, or go to our glossary.

What are credit cards and how do they work?

Credit cards give you credit, which is usually interest free for up to a maximum of 56 days, after which you can either pay off what you have spent on your credit card in full – meaning you pay no interest – or you can pay off some of your credit card balance each month.

Typically, the minimum amount you must repay is around 3% of your credit card balance, plus interest.

There are many different credit card issuers, but most operate through two worldwide credit card networks – VISA and MasterCard.
Visa credit cards

What different types of credit cards are available?

There are various different types of credit card and it is important to think about how you will use your credit card and choose the one that best suits your needs:

Standard credit cards are available to anyone over the age of 18 who fits the lender’s borrowing criteria. You can settle the amount you owe in full and without interest within a given period of time, or pay off a portion of the amount and carry the remaining balance forward with interest.

Gold or platinum credit cards offer lower interest rates but are only available to those on higher incomes and may involve charges. They often come with added benefits such as free travel insurance.

Balance transfer credit cards can save you money on interest payments. In exchange for a transfer fee (usually 1-3% of the balance) they offer an interest free period of between 12 and 34 months.

The rate may only apply to balance transfers, not purchases, meaning you could end up paying the provider’s standard or higher rate if you make new purchases with the credit card. You will start paying interest on the balance after the introductory period.  Lifetime balance transfer cards charge a low rate until your debt is paid off.

Interest free purchase credit cards offer free credit for an introductory period. The length of this varies, but is usually between 3 and 16 months. After that you will pay the lender’s typical interest rate. So it pays to check what the typical interest rate is too.

Cashback credit cards give you back a percentage of your spending in cash – so when you spend on your credit card, you get something back.

Reward credit cards are similar to cashback cards but instead of getting cash back when you spend, you receive rewards points, such as Airmiles. You can then redeem these points with partner organisations.

Charity credit cards give the charity a nominal amount for each transaction. Watch out for high interest charges on these credit cards if you don’t pay them off each month.

Affinity credit cards are linked to organisations such as stores and charities. You may get small discounts or rewards from the organisation your card is affiliated to when you use it.

Prepaid credit cards have to be topped up with money before they can be used. They don’t charge interest and offer the convenience and functionality of a credit card for people who have been refused credit, or who don’t have a conventional credit card for other reasons.

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What should I consider when choosing a credit card?

If you’re unlikely to pay off your balance each month, the most important thing to check is the Annual Percentage Rate (APR). If you know you will be able to pay off the balance each month, consider getting a cashback credit card or a credit card that offers rewards.

Before applying for the credit card you should also check:

  • the period of free credit (the maximum is usually 56 days but some with credit cards it is less than this)
  • when interest is charged: some credit cards charge it from the statement date, others charge from the purchase date
  • how much you will be charged if you miss a monthly payment
  • whether there is an annual charge for the credit card.

Can I get a credit card even if I have limited or bad credit?

If you’ve previously been turned down for a credit card, it may be because you’ve damaged your credit rating by running up debts or because you do not have enough credit history.

Some credit card providers specialise in people with an adverse credit rating or people with low incomes like students.

Can a balance transfer credit card save me money?

Low interest balance transfer credit cards can save you money on interest payments made against the balance you transfer.

Most credit cards charge a balance transfer fee of around 2-3% for this service, however the fee could be worth it because you could save a significant amount by avoiding paying interest.

Don’t forget that the low interest rate charged for balance transfers may not apply to purchases, so if you start spending on your credit card, you could end up paying a higher interest rate.

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How do I pay my credit card bill?

Most credit card providers offer various ways to pay your bill. You could normally pay:

  • by cheque
  • by setting up a direct debit
  • online if you have online banking
  • in person at a bank

Can consolidating my credit card debt save me money?

If you’ve got several credit card debts, it makes much more sense to transfer your balance onto one low-interest credit card – so you’ll be saving money and making repayments easier to manage.

Remember to cut up and cancel your old credit cards once you transfer your balance.

Many providers offer low or 0% interest rates on balance transfers. This often only lasts for a relatively short introductory period, but long-term and lifetime balance transfer cards are also available.

Will I be able to use my credit card abroad?

Credit cards can be used in the same way abroad as in this country. You can pay for hotels, meals and purchases as well as obtain cash from cash machines abroad. But bear in mind there may be extra charges for converting currency.

These are normally referred to as foreign usage loading on your statement.

Also, when you withdraw cash abroad, you will pay a cash-handling fee on top of foreign usage loading – find out more about getting the best travel credit card.

How can I protect myself against credit card fraud?

With more and more of us shopping online and over the phone, protection from identity fraud is more important than ever.

Most banks now offer a fraud protection guarantee so you won’t pick up the bill if someone steals your credit card details.

To ensure your credit card details aren’t used without your consent:

  • check your credit card statements regularly – if anything seems unusual, alert your credit card provider immediately
  • never tell anyone your PIN number, not even your bank (and never write your PIN down)
  • make sure no one is watching you when you enter your PIN in shops or at cash machines
  • check your credit report for changes.

How does the Consumer Credit Act protect me?

One of the advantages of paying for things with a credit card is that it offers you extra protection.

Under Section 75 of the Consumer Credit Act, if you pay for something on a credit card and it cost between £100 and £30,000, the credit card company is jointly liable with the retailer if things go wrong.

The Act also applies if you purchase goods abroad. So if something you buy is faulty, you can ask the credit card company to intervene or refund you.

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Credit card glossary

0% purchase credit cards - These credit cards charge no interest on purchases but only for a set introductory period (normally 3 to 12 months).

Adverse credit - This is the term used for people who have a poor credit rating or history. This may be because they have mortgage arrears or a County Court Judgment against them.

Affinity credit cards - These are credit cards that operate in the same way as other credit cards except that they are linked to organisations such as stores and charities.

You may receive rewards from the organisation your card is affiliated to. If you have a charity card, the charity will receive a nominal amount for each transaction.

APR - This stands for Annual Percentage Rate. Any firm that lends money is required by law to quote the APR. The APR takes into account the interest you will be charged plus any additional charges making it easier for you to compare products. In general, the lower the APR the better the deal.

Balance transfer credit cards - A credit card balance transfer means moving your debt from one credit card to another. It’s often a good way to save money as many companies offer an interest-free period on balance transfers to new customers.

Cashback credit cards - Cashback credit cards offer a straightforward cash reward for using them. They give you a percentage of your spending in the form of a cash rebate.

Cash-handling fee - This is a charge made by your credit card provider for withdrawing cash abroad and in the UK. Each time you use your card in a cash machine you will be charged this fee.

Direct Debit - Setting up a direct debit to pay your credit card bill allows you to pay the minimum amount, an amount specified by you each month or the full balance on your credit card.

Foreign-usage loading - This is a charge made by your credit card provider for using your card abroad.

Platinum credit cards - These credit cards tend to offer lower interest rates but are generally only available to those on higher incomes.

PIN - This stands for Personal Identification Number. It is the number you key in when purchasing something or withdrawing cash with your credit card or debit card.

Read more…

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