Guide To Credit Cards

Credit cards can be a convenient way to borrow money to fund purchases. With a purchase to make, there are many different reasons why using a credit card can be advantageous, even if there are ample cash funds available.Credit cards can be a convenient way to borrow money to fund purchases. With a purchase to make, there are many different reasons why using a credit card can be advantageous, even if there are ample cash funds available.

Compare Credit Cards With Tiger.co.uk

A credit card offers the privilege of being able to borrow money for up to 59 days without paying any interest. Also, when a purchase is made with a credit card, the cardholder automatically benefits from certain legal rights that debit cards or cash do not provide.

The Consumer Credit Act

Under Section 75 of the Consumer Credit Act 1974, a credit card holder has certain legal rights if they use their credit card to purchase a product priced between 100 and £30,000. Even a partial purchase on a card counts. If, for example, a deposit of £1 is put on a credit card and £99 is paid in cash, that purchase is still protected.

What Is Covered By The Consumer Credit Act?

If something goes wrong, such as the company that has been transacted with goes bankrupt or shopping delivery gets lost, the trader and the card issuer share the liability. That means that the cardholder can ask either party for reimbursement.

For example, imagine that a credit card is used to buy a sofa and between the date of purchase and the date of delivery the sofa retailer goes into administration, resulting in the sofa not being delivered. Instead of pursuing the sofa company for reimbursement, the cardholder can choose to pursue the credit card provider instead. The odds are that the credit card company will make a reimbursement a lot quicker than the bankrupt sofa retailer!

Purchase Protection For Free

When shopping around for cards it is worth checking information regarding purchase protection . Purchase protection means that if something happens to items bought (for example if they are stolen, damaged or lost) within a certain time period, a claim can often be made to the credit card company to reclaim the cost of goods.. As always, check card terms and conditions.

Spread Monthly Payments

A credit card can help people to buy bigger ticket items and spread the payments. Many cards come with an introductory interest-free period. After that the borrowing on the card will start to attract interest. The typical rate on a card is around 18% and as such they are not suitable for long term borrowing. Always try to pay more than the minimum monthly payment otherwise the interest mounts up.

Additional Benefits

There is a lot of competition in the credit card market and as such some card providers offer additional benefits to those that are highlighted above. Anything from free extended guarantees to free travel insurance are worth investigating. Some companies will also offer price protection which is useful. If a product that has been purchased on the card is later made available at a sale price, price protection allows a cardholder to claim back the price difference, usually up to 60 days after the date of purchase. There may be a limit to the maximum amount that can be reclaimed – once again, check terms and conditions carefully.

Penalty Charges

There are downsides to credit cards. If the bill is not paid in full each month, hefty interest charges are levied and can soon add up. There are also penalty fees for late and missed payments. If payments cannot be made on time there is every chance that this will also have an adverse effect on the cardholder’s credit score.

Selecting A Card

There are many different types of credit card available and selecting one that best suits individual circumstances depends on whether or not there is a balance to transfer, individual spending habits and credit history.

0% Balance Transfer Cards

With a 0% balance transfer card there is no interest to be paid on the balance initially transferred to the card. For example, if £3,000 of debt was held on a card that was charging 10% interest a year, a saving of £300 would be made over the year by switching to a 0% card.

This type of card is ideal if there is an existing debt to be transferred as it allows the cardholder to pay it off much quicker and potentially without incurring interest charges. Payments go towards clearing the amount of money owed, not the interest on the debt.

It is very important to be aware of the period of time to which the 0% interest deal applies. All 0% deals expire and, when they do, the debt starts to attract interest, normally at quite a high rate - typically around 16-18%. If there is still going to be a balance outstanding at the end of the 0% period it is prudent to start shopping around for a new 0% card about a month before the end of the promotional period so that another card is lined up to switch to before this date. Better still is to try to clear the debt completely before the current 0% deal expires.

Fees Within The Balance Transfer Market

These days the majority of 0% balance transfer cards charge a balance transfer fee, often around 3%. If there is interest being paid on an existing debt then this fee is unlikely to outweigh the benefits of switching, but it is worth being aware of this condition.

0% Purchase Cards

With a 0% on purchases card, there is no interest due on new purchases made on the card for a set period. Once this set period ends, the cardholder has to start paying interest, usually at around 16%.

0% on Purchases And 0% Balance Transfers

This type of card offers cheap introductory interest rates on both balance transfers and purchases. The deals offered on these cards are unlikely to beat the offers on more specialist cards but it can be easier to make one application and just to have a single credit card.

Unfortunately, those opting for this type of card can get stuck in the credit card provider’s expensive trap. If the 0% on purchases deal lasts for a shorter period of time than the 0% on balance transfers deal, the cardholder could eventually be forced to pay interest on their purchases. It is always wise to check whether the 0% period lasts as long for purchases as it does for balance transfers. More often than not, the purchase period is shorter than the balance transfer period. It is wise to avoid transferring a balance onto these cards and use them just for spending – or, alternatively, transfer a balance and avoid spending.

Lifetime Balance Transfer Cards

Lifetime balance transfers are ideal for those who expect to take more than a year to pay off a large credit card debt. 0% balance transfer deals do not last forever and some people prefer not to move debts from one card to another every year in order to get the good deals that are available. Shockingly, according to Lovemoney figures, half of all balance transfer cardholders do not transfer to a new card simply because of the inconvenience.

To avoid getting caught in this trap, a lifetime balance transfer card that charges a constant low (and flat) interest rate could be a better option. This low interest rate applies for the entire lifetime of the card –in essence until the debt is paid off.

Choosing A Lifetime Balance Transfer Card Over A Remortgage Or Loan

It is usually cheaper to borrow on a lifetime balance card than to increase the size of a mortgage or take out a personal loan. Also, as lifetime balance cards come with fixed rates, the cardholder is protected against any future rate rises.

A Word Of Warning

Remember to avoid spending on a lifetime balance transfer card. New expenditure is very likely to attract a high interest rate, much higher than the attractive lifetime balance transfer rate.

This is due to what is described as a negative payment hierarchy; the new debt will sit in the background gathering interest until the original transferred balance has been paid off. So remember not to spend on a lifetime balance transfer card. It is there primarily to help to pay off existing debts, not to make new purchases.

Cashback Cards

Cashback credit cards are a good way of profiting from everyday spending, but they do require discipline – making money on purchases is great as long as the cardholder does not end up paying back more in interest!

Cashback credit cards are perfect for those who pay off their balance in full each month and would like to get a little extra out of their credit card. Standard cashback percentages are generally up to 1% but many providers offer introductory periods at rates as high as 3%.

Cashback And Reward Cards

There are a few different types of cashback cards around. Some offer efficient ways of giving charitably and others are tied to retail loyalty schemes, offering the chance to earn loyalty points. Recent research from Lovemoney has concluded that, after interest rates, rewards are the second most important factor to consumers when choosing a credit card. This type of card can offer good value if the rewards fit individual needs.

Late Payment And Credit Score

If a credit card applicant has a history of late payments or difficulty in paying back debt, then credit card companies and banks will perceive them as being higher risk. This means that companies may not want to offer their very best deals. Having a poor credit score can often mean that applicants can be rejected by credit card providers or end up paying high rates of interest.

If a lender rejects a card application, it is worthwhile trying to start a dialogue with the credit card company. Find out why it has been turned down and try to remedy that specific problem. It may be something as simple as not being on the Electoral Roll – so it really is worth finding out.

Before making an application it is worth investigating your credit score by using a service like Experian. (link to credit checks)

How To Improve A Credit Rating

If you do have a poor credit rating the good news is that it may not take more than around six months to improve the score. In order to get back on track, bill payments must not be missed and it needs to be evident that debts are starting to clear. It is also wise not to apply for any more credit during this “get into shape” period.

There are plenty of simple ways to appear more attractive to lenders: get on the electoral roll; never miss payments; get a landline phone; update or cancel old cards and accounts; and reduce debts.

Apply

To compare some of the best 0% interest credit cards, balance transfer deals, and great cashback offers, visit our credit card comparison engine today.

Compare Credit Cards With Tiger.co.uk

A credit card offers the privilege of being able to borrow money for up to 59 days without paying any interest. Also, when a purchase is made with a credit card, the cardholder automatically benefits from certain legal rights that debit cards or cash do not provide.

The Consumer Credit Act

Under Section 75 of the Consumer Credit Act 1974, a credit card holder has certain legal rights if they use their credit card to purchase a product priced between 100 and £30,000. Even a partial purchase on a card counts. If, for example, a deposit of £1 is put on a credit card and £99 is paid in cash, that purchase is still protected.

What Is Covered By The Consumer Credit Act?

If something goes wrong, such as the company that has been transacted with goes bankrupt or shopping delivery gets lost, the trader and the card issuer share the liability. That means that the cardholder can ask either party for reimbursement.

For example, imagine that a credit card is used to buy a sofa and between the date of purchase and the date of delivery the sofa retailer goes into administration, resulting in the sofa not being delivered. Instead of pursuing the sofa company for reimbursement, the cardholder can choose to pursue the credit card provider instead. The odds are that the credit card company will make a reimbursement a lot quicker than the bankrupt sofa retailer!

Purchase Protection For Free

When shopping around for cards it is worth checking information regarding purchase protection . Purchase protection means that if something happens to items bought (for example if they are stolen, damaged or lost) within a certain time period, a claim can often be made to the credit card company to reclaim the cost of goods.. As always, check card terms and conditions.

Spread Monthly Payments

A credit card can help people to buy bigger ticket items and spread the payments. Many cards come with an introductory interest-free period. After that the borrowing on the card will start to attract interest. The typical rate on a card is around 18% and as such they are not suitable for long term borrowing. Always try to pay more than the minimum monthly payment otherwise the interest mounts up.

Additional Benefits

There is a lot of competition in the credit card market and as such some card providers offer additional benefits to those that are highlighted above. Anything from free extended guarantees to free travel insurance are worth investigating. Some companies will also offer price protection which is useful. If a product that has been purchased on the card is later made available at a sale price, price protection allows a cardholder to claim back the price difference, usually up to 60 days after the date of purchase. There may be a limit to the maximum amount that can be reclaimed – once again, check terms and conditions carefully.

Penalty Charges

There are downsides to credit cards. If the bill is not paid in full each month, hefty interest charges are levied and can soon add up. There are also penalty fees for late and missed payments. If payments cannot be made on time there is every chance that this will also have an adverse effect on the cardholder’s credit score.

Selecting A Card

There are many different types of credit card available and selecting one that best suits individual circumstances depends on whether or not there is a balance to transfer, individual spending habits and credit history.

0% Balance Transfer Cards

With a 0% balance transfer card there is no interest to be paid on the balance initially transferred to the card. For example, if £3,000 of debt was held on a card that was charging 10% interest a year, a saving of £300 would be made over the year by switching to a 0% card.

This type of card is ideal if there is an existing debt to be transferred as it allows the cardholder to pay it off much quicker and potentially without incurring interest charges. Payments go towards clearing the amount of money owed, not the interest on the debt.

It is very important to be aware of the period of time to which the 0% interest deal applies. All 0% deals expire and, when they do, the debt starts to attract interest, normally at quite a high rate - typically around 16-18%. If there is still going to be a balance outstanding at the end of the 0% period it is prudent to start shopping around for a new 0% card about a month before the end of the promotional period so that another card is lined up to switch to before this date. Better still is to try to clear the debt completely before the current 0% deal expires.

Fees Within The Balance Transfer Market

These days the majority of 0% balance transfer cards charge a balance transfer fee, often around 3%. If there is interest being paid on an existing debt then this fee is unlikely to outweigh the benefits of switching, but it is worth being aware of this condition.

0% Purchase Cards

With a 0% on purchases card, there is no interest due on new purchases made on the card for a set period. Once this set period ends, the cardholder has to start paying interest, usually at around 16%.

0% on Purchases And 0% Balance Transfers

This type of card offers cheap introductory interest rates on both balance transfers and purchases. The deals offered on these cards are unlikely to beat the offers on more specialist cards but it can be easier to make one application and just to have a single credit card.

Unfortunately, those opting for this type of card can get stuck in the credit card provider’s expensive trap. If the 0% on purchases deal lasts for a shorter period of time than the 0% on balance transfers deal, the cardholder could eventually be forced to pay interest on their purchases. It is always wise to check whether the 0% period lasts as long for purchases as it does for balance transfers. More often than not, the purchase period is shorter than the balance transfer period. It is wise to avoid transferring a balance onto these cards and use them just for spending – or, alternatively, transfer a balance and avoid spending.

Lifetime Balance Transfer Cards

Lifetime balance transfers are ideal for those who expect to take more than a year to pay off a large credit card debt. 0% balance transfer deals do not last forever and some people prefer not to move debts from one card to another every year in order to get the good deals that are available. Shockingly, according to Lovemoney figures, half of all balance transfer cardholders do not transfer to a new card simply because of the inconvenience.

To avoid getting caught in this trap, a lifetime balance transfer card that charges a constant low (and flat) interest rate could be a better option. This low interest rate applies for the entire lifetime of the card –in essence until the debt is paid off.

Choosing A Lifetime Balance Transfer Card Over A Remortgage Or Loan

It is usually cheaper to borrow on a lifetime balance card than to increase the size of a mortgage or take out a personal loan. Also, as lifetime balance cards come with fixed rates, the cardholder is protected against any future rate rises.

A Word Of Warning

Remember to avoid spending on a lifetime balance transfer card. New expenditure is very likely to attract a high interest rate, much higher than the attractive lifetime balance transfer rate.

This is due to what is described as a negative payment hierarchy; the new debt will sit in the background gathering interest until the original transferred balance has been paid off. So remember not to spend on a lifetime balance transfer card. It is there primarily to help to pay off existing debts, not to make new purchases.

Cashback Cards

Cashback credit cards are a good way of profiting from everyday spending, but they do require discipline – making money on purchases is great as long as the cardholder does not end up paying back more in interest!

Cashback credit cards are perfect for those who pay off their balance in full each month and would like to get a little extra out of their credit card. Standard cashback percentages are generally up to 1% but many providers offer introductory periods at rates as high as 3%.

Cashback And Reward Cards

There are a few different types of cashback cards around. Some offer efficient ways of giving charitably and others are tied to retail loyalty schemes, offering the chance to earn loyalty points. Recent research from Lovemoney has concluded that, after interest rates, rewards are the second most important factor to consumers when choosing a credit card. This type of card can offer good value if the rewards fit individual needs.

Late Payment And Credit Score

If a credit card applicant has a history of late payments or difficulty in paying back debt, then credit card companies and banks will perceive them as being higher risk. This means that companies may not want to offer their very best deals. Having a poor credit score can often mean that applicants can be rejected by credit card providers or end up paying high rates of interest.

If a lender rejects a card application, it is worthwhile trying to start a dialogue with the credit card company. Find out why it has been turned down and try to remedy that specific problem. It may be something as simple as not being on the Electoral Roll – so it really is worth finding out.

Before making an application it is worth investigating your credit score by using a service like Experian. (link to credit checks)

How To Improve A Credit Rating

If you do have a poor credit rating the good news is that it may not take more than around six months to improve the score. In order to get back on track, bill payments must not be missed and it needs to be evident that debts are starting to clear. It is also wise not to apply for any more credit during this “get into shape” period.

There are plenty of simple ways to appear more attractive to lenders: get on the electoral roll; never miss payments; get a landline phone; update or cancel old cards and accounts; and reduce debts.

Apply

To compare some of the best 0% interest credit cards, balance transfer deals, and great cashback offers, visit our credit card comparison engine today.

22/04/2013 14:24:26 Eren

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