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CREDIT CARD INFORMATION

        

Welcome to our credit section. We aim to lay credit cards bare, with clear, straight forward information on what they are, how they work, the benefits to you and what to watch out for. Make sure you read through, so you know what to look for when you're thinking about getting a card.

WHAT ARE CREDIT CARDS?

Unlike debit cards, a credit card allows you to spend money and be billed for it later; much like eating in a restaurant. Debit cards take money directly from funds in your account, so you pay for things as you buy them.

With a credit card you will be billed monthly, if you pay the full monthly balance before the monthly payment date then you will benefit from an interest free period. However, if you miss the payment date, you will be charged interest on the amount.

Credit cards allow you to withdraw cash from ATM machines, like debit cards, but they will charge you a fee for doing this.

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WHAT ARE THE BENFITS OF CREDIT CARDS?

If you use it sensibly, a credit card can offer you certain benefits; but if used irresponsibly, then you can get into some real difficulty with your debt growing, and a bad credit rating.

The main appeal is that if you don't have the money at the time, you can 'borrow' it, and pay it back a bit later. Credit cards also offer protection on purchases of the value of 100 or more (under the Consumer Credit Act 0974), so if you have issues/problems with services or goods purchased on your card, then the issuer (or retailer) must give you a refund.

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APR - WHAT'S THAT?

The APR, or Annual Percentage Rate, is the amount a lender/provider charges you for 'borrowing' money.

Unfortunately, different lenders have different ways of working out this rate, so you may end up with different answers.

In basic terms, the loan length (the time you are borrowing the money for) and the rate at which you pay it back, affect how much it will cost you. But the government agency OFT (Office of Fair Trading), and the bank and building society association APACS (Association for Payment Clearing Services) disagree about whether this should be included in the APR (alongside the monthly interest rate) or not. The OFT say 'yes'; APACS say 'No'.

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CHANGES TO THE ADVERTISED APR

From 1st February 2011, the Consumer Credit Directive (CCD) takes effect. The CCD was created by the European Council in 2008 and is designed to provide more transparency in unsecured loan and credit card products. The way you will notice the change is where you see the APR listed next to a loan or credit card. Instead of 'typical' APR, which you may have been familiar with, the rate shown will now be known as 'representative' APR.

Typical APR: was the rate that at least two-thirds of borrowers would be offered (or 66%). Of course, the rate still varied according to the individual's personal circumstances and credit rating but it was the rate that the majority of applicants received.

Representative APR: is the rate that only has to be offered to 51% of applicants. In other words, far fewer people will actually receive the rate that is advertised than before. As before, the rate you receive will depend on your personal circumstances. All secured loans (including mortgages) will continue to use typical APR. You will notice that wherever the APR is advertised, it will be accompanied by an example this is useful and will provide information on the charges and other important elements of the loan or credit card.

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BALANCE TRANSFER EXPLAINED

A high percentage of people now choose to deal with debt by using balance transfers, and in response, most credit card companies offer this facility with their existing cards, many have actually launched cards specifically for this purpose. They're a convenient and relatively low cost option for managing debts.

But is this all good news? Well, for the most part yes, but certain elements can be confusing, and in some cases prevent you from getting the best deal. Make sure you know where you stand, and read the small print to make sure you get the most out of your balance transfer.

You can make a balance transfer onto any card that offers them, and there is no limit to the number of transfers on each card. However you will have to be within 95% of the credit limit. (i.e. If your limit is 4000, you can transfer up to 3800)

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WHAT ABOUT 0% & BALANCE TRANSFER FEES?

Many cards offer 0% for a certain amount of time, at which point the rate returns to the usual rate of interest. Find out what happens to any outstanding debt after this time is up; make sure you know when the dates are and more importantly what the 'regular' rate of interest is; many of these cards will have steeper overall interest rates.

The majority of credit card companies will impose a fee of around 3% of the total amount you are transferring, and this will apply to each balance you transfer.

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THE BEST TIP

Read the small print! Terms and conditions are there for a reason, and by taking the time to find out whether a deal will suit you, you'll make sure managing you debt is as straight forward as possible.

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STUDENTS AND CREDIT CARDS, ARE YOU READY?

We're surrounded by offers of credit, and it sounds easy doesn't it? It is, but it's a good idea to think twice before you do it.

Many credit companies seem to promise you a lot, with no real lowdown on what cards will actually cost you and little or no mention of the risks.

Overspending and falling behind on payments is one of the fastest ways to incur too much debt.

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WHY DO COMPANIES OFFER CREDIT TO STUDENTS?

It may sound strange, as students often don't have jobs and are already in debt with student loans, but many companies think they are a good credit risk. This may be because people tend to stay loyal to their first credit card, and so will stick with the company for years to come.

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What is a Reward Credit Card?

Reward credit cards are just like normal credit cards, but they carry a reward, bonus or points scheme which 'rewards' the card holder. Typical programmes on reward credit cards are:

  • Collect air miles
  • Cheaper petrol
  • Free /reduced price hotels
  • Points which can be redeemed against certain products

The card holder 'earns' points or rewards each time they use the card to make a purchase either anywhere or they may only be able to gather points/rewards when the card is used for purchases from particular retailers/companies.

Reward credit cards are often marketed as giving the customer something back in return for making purchases. In other words, the card will 'reward' you for spending. This is one way of looking at it but perhaps it is wise to stick to sensible spending rather than increasing the amount you buy!

Aside from the rewards scheme, a reward credit card is just like a regular credit card.

Can I Apply for a Charge Card?

The charge card is a type of credit card, where the card holder must pay off their balance at the end of each month in full. In other words, they may not carry owed balance over until the next month the slate must be clean every month. In addition to this, charge cards usually have either no or a very high credit limit, which means the card holder has even higher spending power.

This sounds like a great deal, but the card holder must be able to pay off their balance every month regardless of how much they have spent on the card. For this reason, most charge cards are aimed specifically at people who have a high income and an excellent credit rating. If you are in a normal or low income bracket, or your credit rating is less than perfect, then you might be better off considering another type of credit card.

ARE THERE ADVANTAGES TO CREDIT CARDS?

By obtaining and using a credit card sensibly (i.e. making regular payments and not falling behind) you can build a positive credit history. A good credit history will enable you to benefit from future credit related products like loans, finance for a car, renting a flat and eventually buying a house. Other advantages with having a credit card; security in emergencies, personal independence and less need to carry cash.

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HOW DO CREDIT CARDS BILL YOU?

Credit cards are not like loans; they do not allow you to spread the amount you 'borrow' over a length of time. You have to make a minimum monthly payment; this amount will depend on how much you spend on the card, and each card will have different amounts that apply, details of which will be in the cards terms and conditions.

The minimum payment will tend to be around 2 percent of your outstanding balance. But beware, if you only pay the minimum each month, your debt will continue to grow. You should also be aware that many companies will charge fees for late payment, and a higher rate of interest on cash advances (withdrawals)

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IS A CREDIT CARD FOR YOU?

It's up to you whether you think you can handle the responsibility of using a credit card. They may be easy to obtain, but they can be difficult to manage, and it's easy to let the costs spiral out of control. So carefully work out whether you can afford to have one, and whether it's worth the risk.

Before you take the plunge, ask yourself; Do I need a credit card? Can I afford a credit card?

And Will I be able to pay off my balance each month?

If you decide to apply for a credit card, shop around. Things to look for are:

  • Low interest rates or finance charges (combined, they are called APR)
  • Low or no annual fees
  • A grace period (time during which no payments are due) before finance charges are posted
  • Other benefits including purchase warranties, free gas, airline miles, etc.

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SO WHAT DO I NEED TO BE AWARE OF?

Interest on balances can be 20% or more, so be careful of keeping too much debt. Interest may be called 'Finance Charges'.

'Fixed Rates' can actually be changed but they must inform you 15 days before.

Read your statement carefully and call the company right away if you have any questions.

There is usually a large finance charge for cash advances and interest begins accruing as soon as you take the money out, not after the next statement closing.

Annual fees may be very high, find out if this applies to your card.

If you take a card with an attractive introductory offer, REMEMBER when the offer expires, after that the rates may be very high. You may forget, but the credit company won't!

Think about your purchases. If you are not able to afford the purchase now, are you sure you'll be able to pay for it when the bill comes?

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WHAT TO DO IF YOU GET BEHIND?

Cut your recreational expenses, and economise on non essentials.

Your credit company may be able to work out a repayment strategy, call and talk through the options.

Learn from your mistakes! Understand where you've gone wrong and don't repeat the same slip ups. Bad credit can follow you and may hinder finance opportunities in the future.

Use credit counselling services, there are loads available, and they're there to help get you back on track.

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