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Managing a Credit Card
How does it work? | Hints and Tips | True or False
How much does it cost to get a credit card?
Some card companies charge a membership fee when you open an account (min. £10)
Some card companies charge a membership fee once a year when you have an account (min. £10)
Most card accounts are free to students in full-time education. Some card accounts are free for everyone.
How much does it cost to run a credit card?
Monthly payment
If you pay the credit card company the total amount that you owe them when you receive your bill, then it can cost you very little to run your account.
Payment Protection
Most companies ask you to pay an insurance premium each month called payment protection. This protects you in case you are ill, have an accident, or are made redundant and you cannot pay your bills. The insurance company will then pay your bill for a fixed amount of time. The amount you pay depends on the amount you owe.
Interest Charges
If you only pay some of the money you owe when you get your bill, the credit card Company will charge you interest on the amount of money still left to pay.
Interests rates vary from card to card and will change according to the amount you borrow. Credit card companies usually tell you the monthly interest you will pay when you are opening an account because it sounds quite low - usually between 1% and 2%.
However, you should ask about the APR. This is the yearly interest rate and it can range from as low as 12% to 30% or more depending on the card you choose and the amount you borrow. Most APRs are based on a £1000 credit limit.
The APR can have a noticeable effect on the amount of interest you pay, so it's worth checking out the interest rates and APRs for each card, before you decide which one you want. Some credit card companies will give you a good interest rate when you first open an account, but it may go up so watch out!
Most credit cards charge you an extra handling fee and a higher interest rate if you withdraw cash on your card.
Card companies can make changes to the membership fee, the interest rates and handling fees at any time, so keep checking how much interest you are paying.
You can use your card to pay for goods or services all around the world (in shops, ticket offices, restaurants, leisure centres, garages, etc). You can also withdraw cash from a cash machine or a bank using your card. You need a Personal Identification Number (PIN) if you want to use a cash machine.
When you offer to pay by credit card, the person dealing with you swipes your card through a machine. The machine registers the amount you want to spend and sends the information to a central computer. The computer accepts - or refuses - your request to use the card.
If the computer accepts the card, you are asked to sign a receipt that shows how much you have spent. Your signature is checked to make sure you are the cardholder and you are given a copy of the receipt. The shop/ business also keeps a copy.
When you have signed the receipt, the computer adds the amount you have spent to your account. It is all done very quickly and easily.
The computer may refuse your card because:
- The card is damaged
- You have gone over your credit limit
- You have missed a payment to the credit card Company
- The card is not yours and has been reported stolen
Check your receipt when you use your card to make sure it is correct.
Keep your receipts and check them against your statement every month - mistakes do happen. Contact the company immediately if you think there is a problem.
Try to pay off your account every month to avoid paying interest.
Keep to your credit limit.
Try to avoid withdrawing cash on your card - there are much cheaper ways of borrowing money, e.g. overdraft, short-term loan.
If you get into financial problems, contact the credit card Company immediately and explain the situation.
Other helpful contacts include:
Credit Action 01223 324034
Money Advice Association 0171 236 3566
National Association of Citizens Advice Bureaux 0171 833 2181
- You must be aged 18 or over to have a credit card.
- You must pay off your account in full at the end of every month .
- An easy and cheap way to withdraw money is by using your credit card.
- Interest rates are the same for all credit cards.
- You can use a credit card instead of paying by cash or cheque.
- Payment protection is a type of insurance.
- To avoid paying interest, you must pay off the amount shown on your statement before the date due.
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