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Credit, Charge, Debit & Store Cards
Credit cards are a "buy now, pay later" form of borrowing that allow you to borrow money from your card provider in order to purchase goods or services either in person or remotely, via the internet or telephone. They can also be used to obtain cash advances from a cash point machine or bank.
Your Credit Card is the most convenient way to make online payments. If you buy goods over £100 and less than £30,000 in value (this applies even if you have paid a deposit via credit card), your Credit Card issuer becomes jointly responsible for the goods you buy. So if your goods arrive damaged or faulty, or the company goes bust, or if you experience any problems receiving a refund, the Credit card Company will assist you. For further information visit the Association for Payment Clearing Services and Ukorbit’s Consumer_Advice_Guides.htm
A specified credit limit will be agreed when you set up your account. This is dependant upon individual financial circumstances; the credit limit varies with each cardholder and is reviewed regularly.
Most credit cards calculate interest from the statement date and only impose the interest if you do not settle the statement in full. However, with cash advances, interest is normally charged from the date of withdrawal, even on cards that offer an interest free period. The interest charged on cash withdrawals is usually higher than interest charged on normal transactions and there may also be a charge for this service.
Credit card providers usually insist that you pay a minimum amount or a percentage of your outstanding balance each month and generally allow 25 days for payment to be made. There is likely to be a penalty for late or "bounced" payments or for exceeding your personal credit limit – Mastercard - Visa
Choosing a credit card
There are a number of factors to be taken into account. If you do not intend to pay off the outstanding amount each month then the most important factor will probably be the interest rate charged and the following should be considered:
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Introductory rates: many credit card providers offer introductory rates from as low as 0% for periods ranging from two months to a year. You should check how long the introductory period lasts; what the introductory rate relates to - Is it for transferred balances only, new purchases only or both? what the interest rate will be after the introductory period ends. |
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Standard interest rate: what is the rate of interest charged following any introductory rate? Interest rates vary greatly from one card to another |
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Interest free period: does the card offer an interest free period? Most cards only charge interest from the statement date. Others calculate interest from the date of the transactions you make. In most cases the maximum interest free period is 56 days (31 days to the statement day then 25 days to make the payment). |
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Cash withdrawals: the interest rate charged for 'cash advances' is normally higher than the rate that applies to purchases or balance transfers and is charged from the date of the cash withdrawal. If you tend to use your credit card for cash advances, what interest rate will be charged and will there be any additional fees? |
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Balance transfers: most credit cards allow you to transfer a balance from one or more other credit cards. What is the interest rate applied to these balance transfers following any introductory period? You should only transfer a balance if it means you will pay less interest. |
Other factors to consider besides the interest rate:
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Annual fee: a few card issuers charge an annual fee for holding the card. This type of card should only be considered if it offers benefits that outweigh the cost of the annual fee. |
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Travel insurance: some cards offer travel accident insurance. Check exactly what is covered and what the conditions of cover are. |
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Cash back: some cards offer cash back on all purchases, usually between 0.5% and 1%. |
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Reward schemes: these can range from Air Miles to reward points redeemable against a particular retailer's goods and services. |
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Charitable donations: where the card issuer makes a small donation to a charitable cause each time the card is used, at no additional cost to the card holder. |
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Online fraud guarantee: some credit cards, offer an online fraud guarantee stating that you will not be held responsible for unauthorised charges against your card which are incurred as a result of using your card online. |
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Gold & platinum cards: These cards offer many additional benefits to users, such as free travel insurance, free card protection, travel discounts, etc. However, a higher level of income is usually required to qualify for these cards. |
Store Cards
A type of credit card which can only be used in specific retailers' outlets. Often there are discounts available when purchasing goods with a store card, however, it is worth checking the rate of interest payable as this is usually higher than a standard credit card - the average rate being around 28-30% - Style - Time
Charge Cards
Charge cards have no pre-set spending limit but the user will be required to repay any balance in full each month. Usually there is a minimum income level requirement and an annual membership fee. These cards are sometimes called Travel and Entertainment cards (T&E) and they offer benefits to travelers – A. Express - Diners
Debit Cards
Most debit cards can be used to purchase goods and services in shops, via mail order and to withdraw cash at home and abroad from ATMs (cash dispensers). A debit card is used in much the same way as a credit card but instead of receiving credit after making your purchase, the funds are automatically withdrawn from your bank account – Switch – Delta - Solo – Electron - Laser
Switch, Visa and Delta: These are the main payment systems in the UK. Switch will be undergoing a change of name to Maestro which is the international name for debit cards.
It is worth noting that retailers do not always have to seek authorisation from your bank if the payment is below a pre-agreed limit and as many transactions are not fully processed until the end of the day, it is possible to overdraw your bank account. Therefore, it is recommended that you ensure you have sufficient funds in your account before using your debit card.
Solo and Electron:
With these cards, each and every transaction is sent to the card issuer for authorisation, as well as to check for lost or stolen cards. Once the card issuer has confirmed that the cardholder has sufficient funds in his account, the transaction can proceed. The amount of the transaction is deducted from the cardholder's account one or two days later.
Cardwatch is the UK banking industry's body that works with police, retailers and organisations including Crimestoppers to fight plastic card fraud.
See UKorbit's Payment Cards and Services page for information on which cards are accepted by online shops and services.
Warning!
Never give your credit card details to anybody - including unsolicited emails or telephone calls even from persons purporting to be from your bank or the police.
Visit UKOrbit's Consumer & Advice Centre for further help and information.
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