Credit Card Charges : Minimum Repayments & The C/Card Companies Fees / Charges
Buying something on a credit card is the equivalent of taking on a loan, but you will have a period of time to pay that money back before you start accruing interest on it. If you pay off your card in full each month, you will not be charged interest.
However, if you cannot do that, then you will be paying interest and at a fairly high rate. Even though it will appear on your statement at, say, 1.25 per cent a month, that will add up significantly over the year.
There are some key advantages to using a credit card to buy goods and services, but there are some drawbacks too.
Advantages:
- Provinding you pay off your balance in full each month, you are getting free credit.
- If you are buying anything worth between £100 and £30,000 either in the UK or overseas, or over the internet or through mail order, you have purchase protection under Section 75 of the Consumer Credit Act 1974, as the card issuer and the retailer take a joint liability for the condition of the goods you receive. If they are faulty or damaged, or you do not receive the goods because the company has gone bust, you are able to claim against the card issuer.
- If you are a victim of fraud, you will not be expected to pay, unless you have been negligent.
- You can get cashback or other incentives, such as loyalty points when using your credit card, and the cards will be accepted worldwide.
Disadvantages:
- If you cannot pay off your balance each month, you will pay interest, and it can be at a very high rate, so if you are in this position, try to move your balance to a credit card that will cost you less.
- Each card will have a credit limit, and that will depend on how well you have managed your credit in the past, the better risk you are to the lender, the more credit you will get. The credit card companies are being more cautious as a result of the credit crunch, so limits are likely to be lower than they have been in the past.
Having a good credit score is vital if you want to get a credit card, and late or missed card payments will count against you. Missed mortgage payments are even more damaging, so consider setting up direct debit payments to make sure they arrive on time.
If there are cards you do not use, you should cancel them, as they could count against your credit score. The credit companies do not just look at how much debt you have, but how much credit you have available, and they will also check the electoral register to match up your current address details.
The best cards are only available to people with the best credit scores, so if you have a patchy payment history, do not bother applying for them as being turned down for a card will also damage your credit score. The more deals you apply for in a short period of time, the worse your rating will be, as each credit search leaves a 'footprint' on your credit record.
