You would be hard pushed to find someone who had never heard of a credit card and most of us end up owning one at some point in our lives. The truth of the matter is however that many of us do not actually fully understand them and would benefit from simply learning more about exactly what they are and how they work.
What is a credit card?
A credit card is a plastic card you can get from a bank or other financial lender that you can use to pay for goods and services in place of physical cash.
Where can you use a credit card?
Almost everywhere accepts credit cards these days. From stores to restaurants and just about everything else in between, they will usually have a sign by the kiosk displaying which types of payment they accept so you can be sure. Credit cards can also be used to withdraw money from the bank using a cash machine and to pay for things online.
Is your spending limited?
When you take out a credit card, you will be told how much money you can charge onto it; this is known as your ‘credit limit’. This amount will differ depending on your provider and what your financial background is. Everything you charge onto the card is added up to make your ‘balance’, which is what you will have to repay.
How do you repay the money?
You will repay the amount owed in instalments, usually monthly. For the privilege of spreading the cost you will also usually pay what is known as ‘interest’. This will be a percentage that is added on to whatever you spend and will be agreed with your provider before you take out the card.
Can you get an interest free card?
Some cards are interest free but they are very rare. Some will offer an interest free introductory period but the rate will rise afterwards. In most cases, the longer you have the card, the higher the interest rate becomes, so it is important to always know what you are paying to make sure the deal is right for you and if the time has come to change to a different card.
Can everyone get one?
Not necessarily everyone will be given a card when they ask for one. If someone has failed to keep up with repayments on old loans and credit cards, they will sometimes be rejected and each lender can have specific requirements they look for in a candidate, so checking if you are suitable beforehand is advisable to avoid disappointment.
What happens if you miss payments?
If you fail to keep up with your monthly repayments you will be charged a penalty and will likely have the card taken from you. Doing this will also damage what is known as your ‘credit rating’, which is essentially a record of your financial history that lenders use to decide whether or not to give you a loan or credit card in the future.
Can someone help you choose a card?
If you are unsure which card is right for you or whether or not a credit card altogether is the right option you can either go direct to your local bank and have them talk you through it or you can use the internet to find helpful information about credit cards that will guide you towards a decision that works for you.