Picking the plastic (Credit Cards in general)

Member Name: SueMagee

Product:	Credit Cards in general
Date:	06/01/02 (362 review reads)
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There are now between three and four hundred different credit cards in the UK alone and some 40 million individual cards in use. Picking the one that's best for you has never been more complicated and in this opinion I'd like to give you information about the different types of cards that are out there, the questions you should be asking yourself before you apply for a card and finally where to go to find out which card is right for you at the moment.

What? You thought I was going to tell you which card was the best one? Well, no I'm not. The trouble is, you see, that the best card today might not be the best card at the end of next week or next month and I'd like to give you some ground rules so that you'll always feel confident that you've got the best plastic. It's like that old saying; "Give a man a fish and you feed him today. Teach a man to fish and he'll sit on a boat all day drinking beer." Well, it was something like that! OK, then, let's have a look at the different types of cards first of all.

Basic credit cards

These are the basic cards issued by most Banks and Building Societies. You can spend or draw cash up to an agreed credit limit and you don't have to pay off the full debt each month. The credit card issuer will refer to this as "the balance outstanding" which makes it seem like something quite grand, but the reality of this is that it's debt and it can very quickly get to be more than a grand - or two. Each issuer will want you to sign their terms and conditions and you need to look at these carefully. You'll get a statement each month either by post or via the Internet and this will tell you how much you owe, the minimum amount that you must pay and the date by which this has to be paid. If you don't pay the full amount interest will be charged on the amount outstanding. If you don't do more than pay off the minimum amount each mon
th you can be perpetually in debt!

Charitable Cards

This is a variation on the basic credit card and there are more than a thousand such cards available with more being added on a regular basis. A small sum is payable to the named charity when you use the card, but occasionally a larger donation (usually between £2.50 and £10) is made when you first take the card. This sounds like a very worthy thing to do, but the amounts which actually go to the charity are small and you might be better taking out a card with better perks and making a donation to the charity by Gift Aid.

Gold and Platinum Cards

These are generally only offered to people who have an income in excess of £20,000 or sometimes £25,000 a year and are a good credit risk. They perform the same function as the basic credit card. There may, or may not, be a fee for such a card, but there will generally be a higher spending limit and a higher daily cash withdrawal limit. You might also get other extras such as travel insurance, medical insurance, credit card protection and occasionally warranties for household appliances. I have also seen schemes whereby you can make savings in hotels but my experience is that such offers are generally hedged around with so many conditions that they are not worthwhile, but if anyone knows differently I'd be pleased to hear about it!

Store Cards

These are effectively a credit card whose use is restricted to one retailer or group of retailers. They have limited benefits unless you regularly deal with a retailer who doesn't accept mainstream credit cards. The charges for credit are generally substantially higher than on a normal credit card and benefits such as a free magazine and "sale preview" evenings should be viewed with some scepticism as they're unlikely to be worth the extra charges that you'll be paying for credit. Some store cards offer you a budget option, whereby you pay a fixed
amount each month but are required to stay within a fixed spending limit.

Charge Cards

A strange animal this one! You will be charged an annual fee for the card and you can make purchases and withdraw cash, generally without a spending limit, but the full amount must be paid off each month. You usually get incentives such as travel insurance, Air Miles or other rewards. There's also an element of one-upmanship with these cards which do little that a normal credit card does not do. American Express and Diners Club offer cards to selected members of the general public, but the charge cards issued by the Banks are generally only issued to existing customers.

Debit Cards

This is the one that backs up your current account! It's useful for getting cash from a cash machine and for making purchases without the bother of having to write a cheque, but do make certain that you keep a record of payments made in this way as it's very easy to drop into the red if you forget something!

So, having decided what sort of cards you're going to want in your wallet, how do you go about choosing the one that's going to suit you best? There's one question which you should ask yourself and the answer will point you in the right direction.

AM I GOING TO REPAY THE FULL BALANCE EACH MONTH?

You are? Brilliant! I'm pleased to hear it. You needn't even bother to look at the interest rates that the cards are charging. Look instead at the interest-free period and the perks that are on offer as well as any annual fee that's chargeable. One important point to check with any card is whether or not interest is chargeable from the date of the statement or the date of the purchase. Some cards charge interest from the date that the purchase is made, so you would be paying interest even if you repay the full amount outstanding each month. You should avoid such accounts if you clear your account
in full each month.

Check the interest-free period offered. I plan major purchases for the day after my monthly statement date so that I don't receive a bill for another month and I don't have to make a payment until some time after that. This can mean that there's a period of as much as 59 days between making a purchase and paying for it which is interest-free, but this period can be as low as 45 days. It's worth checking as the longer the money is in your account earning interest for you, the better!

Don't be swayed by a "big name" on a credit card. You don't need to have one of the cards issued by the major banks as you have nothing to lose by having a card issued by a lesser-known institution. After all, if the worst came to the worst and the card provider went belly-up the only thing of yours that they're likely to take with them is the money you owe to them! Look at the providers who are going to do most for you. Many of the newcomers in this market are USA-based and they can provide a cheaper card because they are not maintaining the branch networks that the UK-based providers are saddled with.

Look at what the card provider is prepared to give you in return for your custom. You can have a choice of travel insurance, cash back, shopping vouchers, Air Miles, rewards and money off your phone bill to name but a few. Make certain that you get a perk that is going to matter to you. Air Miles and travel insurance are of little value if you never go on holiday!

YOU'RE NOT GOING TO REPAY THE BALANCE IN FULL EACH MONTH?

The first point to think about here is "Why not?" Credit cards are rarely the cheapest form of borrowing and you might be wise to consider other forms rather than constantly having credit card debt to contend with. Unless you've got an interest-free deal going don't have money in a savings account whilst you're paying interest on a c
redit card debt - you could well be paying three times as much in interest as you're receiving!

If you do have a credit card debt then your choice of card must be based on the level of interest chargeable. When you get your statement you'll find that the rate of interest is shown on a monthly basis. It doesn't look too bad when you see the interest quoted as "1.019%" does it? This works out at 12.9% a year though - credit cards are far from being a cheap way of borrowing! The true rate of interest must be there and it will be called the APR - that's the annualised percentage rate and this is the rate you should look at rather than the monthly rate. You should avoid any card with a high interest rate unless you clear the balance in full each month. Disregard the perks ? they won't compensate for the higher interest that you'll be paying.

Low introductory rates

In an attempt to persuade you to take out a card you may well be offered low introductory rates of interest - perhaps even as low as 0% on a transferred balance. This is a good deal if you know that you are taking a short term loan and will be paying it off within the interest-free period. If this isn't the case you should look at the rate to which the borrowing will revert once you are out of this honeymoon period. If it's a high rate then you should think carefully before taking out this card. There are a number of good offers available at the moment and it's possible to move debt around between credit cards and pay very little interest, but this is unlikely to last forever and you could well be left with unsustainable debt at high interest rates.


With low introductory offers be sure to check if the low rate applies to the debt transferred to the card or to the debt plus new purchases. It is not unusual for the standard (and much higher) rate to be applied to new purchases.

Withdrawing cash from your cr
edit card

You should avoid doing this unless there is absolutely no alternative. You will generally be charged a higher rate of interest (generally at least 2% more than the interest rate on purchases) but the interest may start running immediately rather than from the statement date. On top of this there could well be a fee for making the withdrawal, often in the region of £1.50 to £2. If you are going to use a card to make cash withdrawals on a regular basis look for a card which charges a reasonable rate of interest and allows an interest-free period.

Annual Fees

Most cards these days do not charge an annual fee but there are still some that do and it's generally in the region of £8 to £18 a year. It is quite simple to find a credit card which doesn't charge a fee and there would seem to be little benefit to having one that does charge a fee.

Three Final Points!

If you do repay your credit card bill in full each month, or even if you only pay a part of it, consider setting up a Direct Debit so that the money is automatically taken from your Bank Account. You'll be given adequate warning to enable you to ensure that there's sufficient money in the account and you need never bother about forgetting to pay the bill. It can save you a hefty charge!

Be wary of making multiple applications for credit cards. Each application will show up on your credit record and could affect a future loan application.

Finally and the one you've all been waiting for - how do you find out which is the best card for you at the present time? Visit Blays - that-s at http://www.blays.co.uk/cards/cdhm0001.htm where you'll find all the information that you need!

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