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A guide to Credit Cards

Find out what a Credit Card is and how they work

What is a Credit Card?

A credit card is a form of borrowing provided by a bank or building society.

A credit card provider will apply interest rate charges against the amount you spend, transfer or withdraw. Interest is charged on a monthly basis, with the rates being displayed under Typical APR.

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How can I use a Credit Card?

A credit card can be used the following ways:

  • Purchasing items
  • Cash Withdrawals
  • Balance Transfers

A credit card can be used to consolidate debt by transferring a balance or balances from another card provider(s). The balance on the credit card could be considered a form of short term loan.

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How much does a Credit Card cost?

All banks and building societies which lend money are required by law to display the cost of borrowing. This appears as ‘APR’, which stands for Annual Percentage Rate and is the interest rate that the credit card provider charges for purchases, balance transfers, cash advances, annual fees and other charges. The lower the APR, the cheaper it is to borrow/spend. Current rates vary from 6.9% Typical APR to 39.9% Typical APR.

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What is a Balance Transfer?

A balance transfer is when you move an outstanding balance from one credit card provider to another. This usually incurs a charge called a ‘balance transfer rate’. The provider may also charge interest on the balance transfer, although numerous credit card providers offer 0% interest on introductory balance transfers for a fixed period – usually 12 months.

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What types of Credit Cards are available?

There are many different types of credit cards available. The most popular types available are listed below.

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0% Balance Transfer Credit Cards

These credit cards are designed for moving outstanding balances from one credit card provider to another – offering a 0% introductory balance transfer rate for a fixed period. Some providers charge a balance transfer handling fee for using this facility, between 2% to 4% of the balance transferred. The 0% introductory period varies from card to card, but is usually around 12 months. These cards are suitable when your credit card 0% introductory balance transfer period is ending soon or if your card provider is charging you a high interest rate on your current outstanding balance.

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0% Purchase Credit Cards

These credit cards are designed for spending and offer a 0% introductory purchases rate for a fixed period. The 0% introductory period varies from card to card, but can ranged from 3 to 13 months. These cards are suitable when your credit card 0% introductory purchases period is ending soon or if your card provider is charging you a high interest rate on your purchases.

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Bad Credit & Credit Building Credit Cards

These credit cards are designed for improving and rebuilding a person’s credit profile – which is a factor used in the approval process for any form of borrowing. However, in return, they charge higher interest rates – between 19.9% Typical APR to 39.9% Typical APR. These cards are suitable for people with poor credit histories or those with no credit history. The balance on these cards should be paid in full each month, to allow the cardholder to improve and rebuild their credit profile.

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Cash Back Credit Cards

These credit cards allows cardholders to earn cash back on their purchases. The more the card is used for purchases, the more cash rewards are applied to the card. The cash back rates available are dependent on the issuer of the card - they vary between 1% to 5%.

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Charity Credit Cards

These credit cards are designed to pay sums of monies to a specific charity or charities, normally a percentage of your purchases.

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Long Term Balance Transfer Credit Cards

These credit cards are similar to 0% Balance Transfer Credit Cards, except they usually charge a low fixed rate of interest for balance transfers and usually don’t charge a balance transfer handling fee. These cards are suitable for customers who want to pay a low rate of interest on their balances or if their card providers are charging high interest rates on their current outstanding balances.

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Rewards Credit Cards

These credit cards are designed to provide cardholders with various rewards. These include cash back, shopping reward schemes, points schemes and Air Miles schemes. Cardholders can accumulate points and Air Miles and trade these for High Street Vouchers, flight tickets and other gifts, with different items costing a certain number of points or Air Miles.

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Prepaid Cards

A prepaid card is neither a debit or credit card but can be used for spending and withdrawing cash. The main difference is that the funds on the card are pre-loaded up front and the cardholder can only spend the balance on the card. This means there is no risk of incurring any debt as the card has no credit or overdraft facilities.

Money can be loaded onto a card via Banks, Building Societies, Post Office branches or Payzone/PayPoint terminal outlets.

There are many prepaid cards available in the marketplace, each charging different fees: top up, purchasing, cash withdrawals from ATMs, annual or monthly fees.

These are suitable for people who have poor credit profiles or no credit history, as there are no credit checks when you apply for them.

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Top Credit Cards + £25 Cash Back!

Clubcard Credit Card with Low BT Fee

Tesco Bank
  • 18.9% APR
    variable
  • 0% on BT (12months )
  • 0.65% Intro BT Fee
  • 0% on Purchases (12 months)
If you borrow £1200 at a purchase rate of 18.94% p.a.(variable), you will pay 18.9% APR Representative (variable).

Platinum Balance Transfer Card (15 Mths)

Bank of Scotland
  • 17.9% APR
    variable
  • 0% on BT (15months )
  • 0.7% Intro BT Fee
  • 0% on Purchases (6 months)
If you borrow £1200 at a purchase rate of 17.95% p.a.(variable), you will pay 17.9% APR Representative (variable).

All in One Card Credit Card

Halifax
  • 17.9% APR
    variable
  • 0% on BT (15months )
  • 0.8% Intro BT Fee
  • 0% on Purchases (15 months)
If you borrow £1200 at a purchase rate of 17.95% p.a.(variable), you will pay 17.9% APR Representative (variable).

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