Your guide to credit cards

Over the years, credit cards have become an important part of our day-to-day lives. Not only do they provide a convenient and flexible way of spending money, but they can also offer a 'safety net' for costs you may not have expected.

With credit cards accepted in most shops, restaurants, gyms, etc. across the UK - and many more across the globe - it's no wonder that most of us now have at least one credit card in our wallets and purses.

Like many things in life, credit card deals come in all different shapes and forms, and there are a number of factors you'll need to think about when choosing the right one for you. Here's our guide to what you should be looking out for.

How does a credit card work?

A credit card is essentially a way of spending money in advance. By putting a purchase on your card, you can delay having to pay that money back.

Credit cards can be especially helpful for essential purchases you can't afford until you get paid, although some people choose to put general day-to-day purchases on their credit cards, simply for the convenience.

As an added bonus, credit cards usually offer greater purchase protection, than other ways of spending such as cash or cheque especially when used to purchase items online.

Please note if you don't pay your outstanding credit card balance in full by the payment date specified on your statement, you will incur interest charges which will make your purchases more expensive.

What protection can a credit card offer?

Under the Consumer Credit Act 1974, if you are paying with your credit card you will receive some protection against faulty or incomplete purchases for anything between 100 and 30,000. So, for example, if you order a new TV and it doesn't work - or if it never arrives - you should be able to get your money back.

Many credit cards also offer protection against fraud, so if a criminal gets hold of your card detail and spends some of your money, you should be able to get it back.

What kind of interest rate can I expect to pay?

The average APR (Annual Percentage Rate) on a credit card today is around 18%. Of course, some are cheaper than this, and some are more expensive. The better your credit rating, the more likely you are to be offered a lower interest rate.

However, if you're careful you may never have to pay any interest. Interest is only charged on your card balance at the end of each month, so if you pay back what you owe before then, it won't cost you any extra.

Most credit cards companies will allow you to set up a regular payment via a Direct Debit or Standing Order. This will help you make your repayments on time and avoid any unnecessary fees.

What extras should I look out for in a credit card?

Most credit card companies offer special introductory deals to help you get started. Some of these can make a big difference to the overall amount you're likely to pay while using your card.

It's worth making sure you understand the various offers before you choose the right credit card for you.

0% balance transfer

On a 0% balance transfer deal, your credit card provider will not charge interest on balances transferred from another card for an agreed period. This means your debt won't grow, meaning you can repay what you owe more quickly.

However, be aware that most card providers still charge a balance transfer fee, which is typically 2.5-to-3% of the total balance.

Cashback

Some providers offer cashback on purchases you make using your credit card. In the long term, this is usually around 1% of your total spending, but some cards may offer more than this for the first few months.

0% interest on purchases

0% purchase credit card deals allow you to make purchases on your card without being charged interest for a time-limited period (often as long as a year).

This can be very helpful if you know you have a few big purchases to make - but remember that you will be charged interest on any outstanding balance at the end of this period, so you should try to pay everything back in good time.

Rewards

Rewards deals on credit cards are similar to cashback credit cards, except you'll usually be rewarded with 'points' each time you make a purchase. These points can be exchanged for things like shopping vouchers, fuel for your car, money off your phone bill, etc., depending on the card provider.

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