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The UK credit card market can be a minefield if you're not careful, so for those who aren't sure what they're looking for, we offer you some help here by answering the most frequently asked questions.
Let's start with the basics. A credit card, at its core, is a plastic card that you can use to buy goods and services using money you borrow, as opposed to a debit card, which, while looking very similar, uses money that you already have sitting in an account. Credit cards tend to come with far more restrictions and charges than debit cards, precisely because you are using someone else's money. This is why it's so important to make sure you choose the best credit card for your circumstances that you can find, to minimise extra costs.
A lender has to agree to give you credit before they hand over one of their coveted cards, on the understanding that you will be paying them back the funds you spend, as well as any previously agreed charges and fees. The lender will want to know your credit history - if you have or have had any debt in the past, and how you've handled it - before they can decide whether you're trustworthy, and what interest rate they would be willing to offer you.
Once you've got the card, you can use it in any way that you like (though beware that there will be different charges depending on the kind of card and how you use it, explained further below). Just remember to pay back at least the minimum required every month, and more if you can, otherwise your debt might get out of control.
As with most things, it depends on how you use them. Whether the good outweighs the bad will depend on what card you get and if you can make the most of its advantages while avoiding the disadvantages.
The main advantages of these plastic friends:
The main disadvantages to watch out for are:
Given these advantages and disadvantages, it's clear to see that a credit card can be worth it, if you don't go overboard with your spending, keep a tight budget, and know exactly what you want from the card so you can get the best deal.
To know which card will work best for you, you'll need to know what different types are available, and what they do, so here's a brief overview.
Whatever you need, make sure you compare credit cards to find the best credit card deals. Also check that you are eligible before you apply for credit, and that doesn’t just mean having a good credit rating. Are you old enough? Have you been a UK resident for long enough? Some lenders may insist you earn a certain amount per year, or that you already have an account with them, so check that it’s a good fit before you apply, otherwise you may jeopardise your credit score for no reason!
Aside from looking at which introductory offer is more generous, the main thing to look out for when you compare credit cards is what APR (Annual Percentage Rate) they charge. Credit cards are authorised and regulated by the Financial Conduct Authority (FCA), who require a clearly indicated APR that allows easy comparison between cards.
Below each of our Best Buy cards, you will therefore find a representative example, which includes a representative APR. This relates to the interest that at least 51% of customers will be offered on standard purchases per year. This makes it easy to compare credit card rates at a glance, but also means that you may not get this rate; bear in mind too that if you're looking to use the card solely for transferring debt, you may want to look at the interest charged on that instead.
Next to interest rates and introductory offers, you may also want to look at eligibility criteria and how you can open and manage the card. A card that is appropriate for the majority of people might not be the right fit for you, which is why it's so important to always compare the best credit card offers to find the one that's best for you.
You'll have to pay interest based on the rate/APR that your lender has set, unless you manage to pay off the balance each month before interest can be charged, or you are benefitting from an interest-free period. Additionally, most providers charge fees for balance and money transfers, as well as for taking money out through an ATM.
Unless you're getting a travel credit card, you will likely pay quite a high rate or fee on any spending done abroad, and even travel cards might still charge something. Last, but certainly not least, be careful as some lenders charge an annual fee for having the plastic, even if you don't use it.
Your credit limit will depend on your credit score and other criteria, so there is no way to know until you've applied. That's why it's important to make sure you choose a competitive card and have your finances under control before you apply.
After you've chosen the best credit card offer for your needs, you will have to supply the provider with personal details so that they can run a credit check. If you apply online, this process can take as little as 15 minutes, whereas applying in branch or by post can take somewhat longer.
Different lenders will take different amounts of time to approve your application (this will again depend on how you apply) and send over the card. Generally, however, you can expect your plastic friend around 10 days after you've been approved. Still, if you need it for a specific purpose, apply for a credit card a month in advance to be sure you get it on time.
As you are not required to put your property or possessions up as a security when taking out a credit card, they can be considered unsecured debt. However, if the situation gets so bad that you are unable to pay back what you've lent without selling your car or house, these possessions could still be at risk.
Mortgage applications require credit checks, to make sure you're a safe bet for the mortgage provider. Since your credit rating is affected by owning a credit card - positively if you've managed to pay the balance off every month, negatively if you've accumulated debt on it and/or missed payments - your credit card will most certainly affect the success of the application. For that reason, it's a good idea to check your credit score before you apply for either a card or a mortgage.
As mentioned above, under Section 75 of the Consumer Credit Act you may be refunded for a purchase that is faulty, substandard or has gone missing.
This depends on the provider, but there are certainly an increasing number of credit cards available that allow contactless payments.
Yes, but due to the high charges usually associated with this (an exception can be travel credit cards when used abroad) it is not advisable to use the plastic to take out money.
While it is possible to have multiple cards tied to the same account, there is always one person solely responsible for the debt that is accrued on a the account. So, while you can arrange for your partner (for instance) to get a credit card on the same account, you would be responsible for ensuring that the balance gets paid off.
In the UK, credit cards cannot be used for direct debits. However, you may want to consider setting up a direct debit from your bank account to pay off (a certain percentage of) your credit card debt each month.
Improve your credit ratingIf you've been rejected from a card application or think you have a poor credit rating, find out how you can get accepted. A simple thing like not being on the electoral roll could be the reason.
Credit repayment calculatorFind out how long it will take to clear your Credit Card.
Credit repayment term calculatorWant to clear your credit card as quickly as possible?
Get mortgage-free soonerHow much is your mortgage payment every month? Imagine if you didn’t have one, it would be nice wouldn’t it? You could start saving, maybe for that dream holiday or pay extra into your pension?
Three problems with balance transfersLooking for a new 0% Balance Transfer Credit Card? You’ll probably have noticed that it’s getting pretty competitive out there, with lots of great deals on offer.
The moneyfacts.co.uk guide to Buy-to-Let MortgagesWhether you’re a newbie to buy-to-let, or a seasoned investor, one of the most important things when it comes to managing your property or portfolio of properties, is to understand how buy-to-let mortgages work.
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