In this guide we will look at the most common questions people ask about credit cards and then introduce you to the different kinds of credit cards available so you are better equipped to make a great financial decision.
What are credit cards?
Credit cards are just like loans but unlike loans, credit cards provide credit for an indefinite time. This is also known as revolving credit.This means credit that is automatically renewed(offered) when debts are paid off.
Credit cards work by giving you access to a fixed amount of money(Your credit limit). You can spend this money as you like but you will need to pay some or all of it(Your monthly minimum payment) back on its monthly due date to avoid being charged interest. If you fail to make this minimum payment on your credit card you will be charged fees.
Let's take a deeper dive into a few terms associated with credit cards which you will need to know such as credit card limits, minimum payments and much more.
What are credit card limits?
A credit card limit is the maximum your credit provider has offered you in credit. This is the maximum you should be able to spend. Some credit card providers do let you spend over this limit but they will charge you a fee for doing so.They may also restrict your spending until you clear the balance which went over your credit card limit.
You will usually only know how much credit limit you will get after you have applied for a credit card and been accepted. The provider might provide an assumed credit limit before but this will have no bearing on how much credit you will actually be offered but can serve as a guide.
Credit card providers have different internal scoring systems to work out what credit limit they will offer you. This will include :
- Your previous repayment history on credit accounts listed on your credit file
- Your income
- Your monthly expenses
- Your credit score
- The amount of available credit you currently have access to
- Your current debts
You can find your credit limit by:
- Calling your credit card provider
- Logging into your mobile app or web app
- Looking at your credit card statement
What happens if you go over your credit limit?
Some credit card providers do let you spend over this limit but they will charge you a fee for doing so.They may also restrict your spending until you clear the balance which went over your credit card limit.
Some credit providers will reduce the credit limit available to you and increase your APR(interest rate) even if you are on a promotion.You should be given 60 days to accept or reject any increase in APR and clear your outstanding balance. Going over your available credit limit can also be reported to the credit bureaus. This will damage your credit score as it will seem as you are not good at managing credit.
If you constantly go over your available credit limit then your credit card provider may close your account and require you to pay any outstanding balance in a short time frame.
How to increase your credit card limit
If you find yourself nearing your credit limit or constantly going over it, you should ask your credit card provider if your are eligible for a credit limit increase and increase your credit limit.Your credit card provider may carry out another credit check which may damage your credit score if you are rejected. You should always ask for a credit limit pre-approval via a soft credit check which only you can see on your credit file.
You can increase your credit card limit by:
- Applying for an increase online
- Calling your credit card provider over the phone or
- By writing to your credit card provider
Your credit card provider can also change your credit limit without asking you.
They could do this if:
- Your spending behavior is unusual
- You missed a minimum payment
- Your credit score has fallen significantly
- You go over your credit limit repeatedly
Tip: Credit limits on balance transfers indicate the maximum amount of money you can transfer to a balance transfer credit card. Not all balance transfer cards will allow you to use all your credit limit on a balance transfer.
Tip: The Golden rule is to spend no more than 30% of your available credit limit as this will boost your credit score.
How to manage your available credit
This is all about how much credit you have available to spend on credit cards and overdrafts. Your credit to debt ratio is the difference between your combined debit balances on your cards and bank accounts and your combined credit limits/overdraft limit.
You need to find the fine line between not having too much credit as lenders may think you could rack up more debt by spending it all and not getting too close to your credit limits, which makes it appear as if you are in desperate need of cash.
The general rule of thumb is that if you have debts, lenders prefer that they make up less than 50% of your available credit. So if you have a combined credit limit of £20,000, they’d rather you use less than £10,000 of it.
If you are already following this rule it’s also wise to avoid lowering your credit limit so not to appear as if you are using all of your credit and hence seem desperate.You should also avoid having way too much credit than you will feel comfortable paying back if you used all of it.
What is a credit card minimum payment?
A credit card minimum payment is the minimum a credit card provider will require you to pay every month if you have an outstanding balance on your credit card. The minimum payment is actually a fixed percentage but as you use your credit card this number moves in line with how much of your balance you have actually spent.
E.g You credit card provider might want your credit card outstanding balance(The amount you owe on your credit card) at the end of the month to be no more than 10%. This means if you have used all your available credit for that month your minimum payment is 90%.
Assuming your credit limit is: £1000
And you spent: £900
Your minimum payment will be: £900
If you spent £500, your minimum payment will be: £400
Essentially your minimum payment is whatever you have to pay to bring your account up to the maximum outstanding balance allowed by your credit card provider before they will impose a charge(In the case above this is £100 or 10% of the available credit limit) the credit card provider will allow you to carry over from one month to the other without any charge.
If you do not pay your credit card in full but pay only the minimum payment then your credit card provider will charge you interest on your outstanding balance.
What happens if I don't make the minimum payment on my credit card?
If you don't make the minimum payment on your credit card for a given month your credit card provider will charge you a fee and charge you interest on the outstanding balance. This will continue until you make the minimum payment.
Paying only the minimum payment on your credit card is the fastest way to accumulate debt. This is because you will begin to accrue interest rate and charges on the outstanding balance for every month you have an outstanding balance.
Any outstanding balance you have on your credit card will also be reported to the credit card provider and this will indicate if you made the minimum payment on your card. If you haven't then this will be marked as negative and your credit score will go down.
Paying off your balance in full each month is the best way to go about things but if you find yourself struggling then considering a 0% Balance transfer card might just save you a considerable amount of money in interest rate charges and fees.
What are credit card fees and charges?
Credit card fees and charges may be levied upon you if you do not stick to the terms of your credit agreement. These fees can be fixed amounts or interest rate charges.
The charges include:
Interest rate charges on purchases:
Credit cards will charge you interest on any purchases you make if you do not clear your full balance on or before your payment is due each month.
Cash advance charges:
Cash advance is described as using your credit card for anything that will usually require cash upfront. This includes withdrawing money from the ATM, gambling etc Your credit card provider will charge you interest for the cash advance which is usually higher than the percentage charged on purchases and may even charge you further interest known as cash handling fee.
Foreign transaction charges:
If you use your credit card in any other currency other than the one specified in your credit agreement your credit card provider will charge you a foreign transaction fee.
Late payment charges:
Your credit card provider will charge you a fee for failing to make your minimum payment on or before its due date.
Balance transfer fees:
You current card provider may charge you a fee for moving your balance to another credit card.
Annual credit card fee:
Some credit card providers charge annual fees. You can pay this in full or it will be added to your monthly outstanding balance.
How do I get a credit card with no credit?
Credit cards are usually not available for people with no credit but more likely for people with bad credit and upwards. You should first check to see if you have an established credit file in the UK. If you do not have an existing credit file then this might be because you haven't been in the UK that long or you haven't taken steps to build credit. It takes between 6 months to 36 months to build credit and this is dependent on the credit bureau.
Once you have an existing credit file then getting a credit card should be easier. Credit cards are readily available for people with bad credit scores. These cards are more commonly known as credit builder cards. They come with low credit limits and high APRs. A few months of good behaviour with these credit builder cards could see your credit score increase and put you in a more favourable position to get better credit cards.
You shouldn't apply blindly for credit cards but rather you should sign up to a credit card eligibility platform to see what credit cards you are eligible for.
If you have a Uk bank account you should ask your bank if you would be eligible for their credit card as some UK banks will be more willing to offer you a credit card even though you do not have a great credit score as they can judge your eligibility from your transaction data.
Which is the best credit card?
The best credit card is ofcourse relative. It all depends on your financial situation and what you value most.Different credit cards have different reward programmes(such as airline miles, supermarket rewards, cashbacks etc) that may or may not suit you
Some of the best cards in the different reward groups include.
Which credit card is the easiest to get?
The easiest credit cards will likely be those ones targeted towards people with little or no credit histories. Stating how easy a credit card might be to get might not be of much value as everyone has varying circumstances. The easiest thing to do is to see what credit cards you are eligible for. There is no need to apply blindly to credit cards anymore as credit card providers will let you know if you are eligible for the card without you applying. They do this by performing a soft check on your credit file. This check cannot be seen by anyone but you and does not affect your credit score.
A credit card eligibility platform will allow you to see what credit cards you are eligible for without affecting your credit score.
What should I look for when getting a credit card?
When getting a credit card you should first consider your reason for wanting a credit card. This could be:
- To build credit
- To manage your finances better
- To borrow money
- To earn rewards such as cashbacks, air miles etc
- To save money by transferring a balance or paying off a loan
Your purpose for getting a card will then lead you to know how you will be using the card. Will you be paying off the full balance each month or will you be carrying on a balance for an extended period in time?
Your answer to this question will show you what need to be prioritised when considering a credit card. If you intend to carry the balance for an extended period in time then interest rate should be prioritised and you should look for cards that might offer a 0% interest on purchases offer for an extended time.
If you want to save money by transferring a balance or paying off a loan then you should consider balance transfer cards that preferably have a 0% introductory period as well.
If you want to use the credit card overseas then you should consider credit cards made specifically for this purpose and don't charge fees on foreign transactions.
You should always consider the following things when looking for a credit card.
The credit limit:
This might be the most important factor to you as it lets you know how much you can spend. Credit limits can increase after a few months of good credit behaviour.
Credit card APR:
This lets you know how much interest you will get charged on any outstanding balance if you do not pay your balance in full on or before its due date.#
This is the amount the credit provider will ask you to pay back each month. If you do not pay this each month you will be charged late payment fees. You will also be charged interest on the total outstanding balance.
Some credit card providers charge annual fees, this can be paid in full or added to your outstanding balance.
There might be charges for going over your credit card limit, using your credit card for cash advances or using your credit card to pay in foreign transactions.
Introductory interest rates:
You should always check if the credit card provider is offering introductory interest rates and for how long. Introductory rates are usually cheaper ratea which then increase after a fixed time.
Loyalty points or rewards:
Some credit cards offer rewards in the form of points which can be exchanged for miles, hotel points, cash back or even to purchase goods.
Some credit card provider offer cashback on spending but they usually only do this if you pay your monthly balance in full.
How can I get a credit card for the first time?
Before applying for a credit card you should ensure you know your credit score and affordability. This will give you an idea of what products you will qualify for. If you are plugged into a financial wellbeing platform then you will automatically see what credit cards you are eligible for. Checking your credit score will also give you the chance to do some repairs before you apply.
If you have little or no credit score then your best chance of a credit card is with your bank or possibly with credit builder credit cards. Regardless of which route you take to get a credit card, good financial behaviour will ensure your financial wellbeing is always in check. Paying your debts off early, always looking to switch and never overspending are a few things you should always look to do.
Getting a credit card for the first time is simple. You simply need to know how a credit card works, the credit cards you are eligible for and then apply. You can see what credit cards you are eligible for with a credit card eligibility platform and compare to see what fits you best.
**So what should you be looking for when comparing credit cards? **
What rates are on offer or rather what rates are you eligible for. The APR is the interest rate plus any cost associated with the credit card. All credit card providers show the APR so this makes it a whole lot easier to compare. APRs are essentially the cost for carrying the debt over a year, you shouldn't worry about this if you plan to repay your credit card in full at the end of every month and therefore you will not be charged any interest.
As with most credit products, the higher your credit score the cheaper the APR.
Fees and charges:
Credit cards have a variety of fees attached to them and if you are not careful you could find yourself paying so many charges that might eventually cost you more than the interest charges on your credit card.. That’s how they get you!
Some of the fees charged are late payment fees, going over the limit fees, withdrawing cash(cash advance), using your card abroad and balance transfer fees(transferring your credit card balance to another credit card provider).
Credit card providers are specialists at introductory offers. They offer cashback, rewards, airmiles, low interest rates( some providers will even offer you a 0% for 24 months +) and many more to get you through the door.
This is the max amount you can spend on your credit card. The higher your credit score, the higher the limit. There will also likely be charges for going over the limit and for those who constantly reach their credit limit, this will affect negatively on your credit score. This is known as credit utilization(how much credit you use in contrast to how much you have available to you).
Many credit card providers will offer rewards to generate new customers, these are a whole lot harder to compare as they vary too much. This rewards are usually in the form of cash back or airline miles which are redeemable via reward points..
The minimum payment is the minimum amount the credit card provider will expect you to pay back every month. This might be a set amount or a percentage of what you owe e.g 40%. The minimum payment will include any charges due for the month, any interest and any annual fees paid monthly.
Essentially, the lower your credit card debt , the lower your minimum payment and the lower the interest rate charges you have to pay back as interest is being charged on a smaller debt.
When you get your first credit card you should ensure you:
Pay your balance in full each month, this will ensure you don't have any interest charges
Avoid withdrawing money from the ATM or gambling with your card.This will ensure you avoid all Cash advance charges.
Check your credit score regularly. This will let you know if your good behaviour is paying off and allow you to move on to better credit cards.
Monitor your account regularly to ensure you don't go over your credit limit. You should ideally be spending less than 30% of the available credit limit to boost your credit score.
How can you be safe with a credit card(Credit card protection)
Credit cards issued in the UK offer a great deal of credit card protection by law. If your card is lost or stolen you can ask your bank to cancel this instantly and they will also refund any more spent on it during this time.
Credit cards also provide protection for transactions between £100 and £30,000. This protection comes from section 75 of the consumer credit act. The minimum protection of £100 applies per item. You may also get protection for charges under £100 via a chargeback scheme.
You will not need to pay the full price with your credit card to get protection under section 75 of the consumer credit act but rather just a deposit will provide your protection for the full amount.
You can also claim for more than the cash price of the item or service and your credit card provider will have to bear this claim. The claims could be about consequential loss or additional expenses.
Any claims on a credit card will need to be made by the main card holder and not the secondary card holder. The only exception are if it was bought for the main card holder or it was a joint purchase. Different credit card providers treat this differently so it is worth asking them prior.
The main problems that are covered under credit card protection in the UK:
The company did not supply the goods or service or the goods or service were not up to standard
The company has misrepresented what it is selling or it is not fit for purpose. E.g buying a charger for a particular phone but the charger doesn't work with said phone.
If you pay for your holiday with your credit card you will have the same protection as above except in cases where you buy a flight only where the third party was only contracted to provide the tickets and not the flight. E.g a travel agent
You might not be able to claim for any costs that were not necessary. E.g if you extend your holiday after an airline goes bust.
To make a claim under section 75 of the consumer credit act you should first attempt to contact the supplier to see if they will give you a refund and pay you any money you are making a claim for.
If they do not respond or are not willing to do this you should then contact your credit card provider informing them that you have attempted to contact the supplier and this has been unsuccessful then inform them that you are making a claim under section 75 of the consumer credit act. You should provide them with as much evidence as possible including receipts, emails etc.
The different types of credit cards
What are Secured credit cards?
Secured credit cards are targeted towards those with little or no credit history. They are not common in the UK. They work like this: You put a deposit down, sometimes the full credit limit or a percentage of the credit limit. If you miss a repayment then the credit card provider can use your deposit to offset their loss.
You will not be able to use your deposit as long as you have the loan and you can get this back at the end of your loan term.
Secured cards will have high APRs and will usually charge an annual fee.
A secured credit card is a good way to build your credit score if you can spend less than 30% of the available credit monthly and pay your balance in full each month.
What are Unsecured credit cards?
Unsecured credit cards are what you have likely heard more of. They are credit cards that do not require any cash or assets to be put down as a deposit. The credit limit & APR you are offered is based on your credit score, history and financial information.
If you have little or no credit history you can still be eligible for an unsecured credit cards as there are providers who target that market.
Tip: Most credit cards will come with an interest free period of 56 days from when you make a purchase but this might vary with providers.
What are Rewards credit cards?
Rewards credit cards is a general term for credit cards which offer you some rewards for spending with your card. The rewards could be airline miles, cashback, points which you can exchange for hotel rooms, loyalty points at supermarkets and much more. When shopping for a rewards credit card you should shop for the card that offers the rewards that your are most likely to use.
Most reward credit cards will require you to spend a minimum amount in a certain time frame and pay your balance in full before being able to claim the reward.
What are Cash Back credit cards?
Cashback Credit cards are credit cards which refund you a percentage of you transactions(usually between 0.5 to 2%).So if you had 2% cash back and bought a £700 TV that would be £14 received in cash back.They may also give you reward points instead of cash. When you shop with your credit card, the shop or business pays a fee to the credit card provider. These fees are known as interchange fees. The credit card provider then offers some or all of these fees to you in order to encourage you to spend more with your credit card. Cashback credit cards will usually only be offered to customers who clear their full balance every month and in any case the interest in most cards will outweigh the cashback if you do not clear off your balance at the end of the month.
Cashback credit cards are available to people with bad credit as well and the best cashback credit cards in the market will depend on if you are eligible for it or not.There are a variety of cashback credit card providers and you will only know which one you are eligible for by shopping through an eligibility platform. After which you can choose which cashback credit card to go with.
Some cashback credit card providers will cap how much they are willing to offer the cashback for an introductory period. They may only also offer the cashback on a particular category of products.
Some cashback credit card providers will also ask for a minimum annual spend before they will pay you your cashback.
Cashback credit cards usually come with an annual fee as well. Typically between £25- £50.
What are Air miles credit cards?
Air miles credit cards are credit cards that offer you miles in exchange for how much you spend on the cards. They are typically offered by airline carriers. They usually have high APRs and annual fees.
Some air miles credit cards offer you reward points which can be exchanged with multiple airline reward schemes for miles.
You have to choose an appropriate airlines credit card that matches the routes you fly with or the carriers you fly with if not the air miles credit card will be useless to you.
Air miles credit cards usually have a high criteria for acceptance, they typically will only accept people with very good credit scores. You should also ensure that you always pay off your credit card balance each month in full if not the benefits earned from the air miles might cost you more as you are now paying interest on your credit card.
People looking for air miles credit cards will be interested in knowing what their “earns rate “ will be. For most air miles credit cards the earn rate differs. This means a point with one credit card provider will take you further in one airline and less with another as they are all exclusive. You will rarely find an airmiles credit card offering an earn rate of one mile per rewards point.
When considering air miles credit cards you should also pay close attention to the bonus miles offered on signup as this might be a significant factor when making your decision.
If you spend a lot on your credit card, then you should look out for flight seat upgrades and companion tickets that many credit card issuers offer if you spend up to a certain amount. You usually have to pay any taxes associated with the flights but these benefits can be worth more, monetarily, than the points themselves.
Some air miles credit card providers will issue you two cards. This is because the most benefits can be gained on AMEX credit cards but AMEX have not got so much coverage. To ensure you have the opportunity to use your credit card in every shop, some credit card providers will offer you two credit cards from AMEX then mastercard or VISA.
What are Travel credit cards?
Travel credit cards( also known as overseas spending credit cards) as they imply are credit cards that have some benefits when you travel. There is no standardised definition of what is included in travel credit cards and for this reason travel credit cards are all different. Some travel credit cards will offer you reward points which you can exchange for miles while some others will allow you exchange the reward points for hotel nights. Some travel credit cards will even count your foreign transaction spend as normal purchases and not charge you the foreign transaction fees which could be as much as 2%.
Some travel credit cards come in the form of travel prepaid cards which come preloaded with an amount of foreign currency which you can travel with.
Using your debit card abroad might be a more expensive process as it will cost you more due to your debit card provider charging you fees.
Travel reward cards will really only be beneficial if you travel often.
What are Hotel rewards credit cards?
Hotel credit cards are credit card provided by hotel groups as part of their loyalty programme. These credit cards will offer different perks based on your spending and reward points which can be converted to nightly stays in certain locations.
You can also use your reward points for hotel room upgrades and free night stays.
Hotel rooms credit cards offer sign up bonuses which may be based on a minimum annual spend.
Hotel credit cards of course require some loyalty to a specific brand so before you go shopping for a hotels credit card you should be sure you intend to stay within the hotel group's brands.
What are Store credit cards?
Store credit cards are credit cards offered by large brands with physical or online stores. They are often referred to as supermarket credit cards.
Store credit cards are used to encourage brand loyalty and the brands use these cards to monitor trends in consumer spending and react accordingly.
Store or supermarket credit cards offer reward points which can be used to spend in store or offer perks such as free delivery etc.
In the UK,
- And Waitrose offer store or supermarket credit cards.
Store or supermarket credit cards can be used anywhere and not just i the stores of the card issuer. You will be able to earn the same rewards the card offers elsewhere but just not as much as in their stores.
Store or supermarket credit cards require good credit scores and you can see if you are eligible for one with a credit card eligibility platform.
Store cards usually offer sign up bonuses such as discounts on your first shopping trip.
Expect high APRs, low credit limit and annual fees.
What are 0% purchase credit cards?
0% purchase credit cards are credit cards which do not charge you any interest on your purchases. They offer this for a limited period of time(a promotional period), usually from 3 months to 30 months.
These credit cards will allow you carry your balance over from one month to another without charging you any interest. It is essentially just like getting a loan for a long time without paying any interest.
The 0% purchase credit card works by insisting you pay your minimum payment every month if not the 0% promotional term will end and you will immediately begin paying interest in any balance outstanding.
Once the promotional period ends, the credit card provider will begin charging you interest on any outstanding balance.
Typically 0% purchase credit cards will have a very high standard interest rate. This is the interest rate you move to immediately your o)5 purchase introductory period ends. You should always check this rate as it will end up being a very important factor.
To qualify for a 0% purchase credit card you will need to have a great credit score.
0% purchase credit cards are a good way of saving money as you avoid any interest charges and they get even better as some 0% purchase cards allow you to transfer a balance from an existing card to them. This cards are known as dual or all round offer cards due to their 0% purchase and balance transfer capability. You will however usually pay a high transfer fee to move a balance over to this dual cards.
If you want a dual or all round offer card which combines both a 0% purchase period and a balance transfer capability(allowing you to move debt from a previous card onto this one) it's important to understand how the balance transfer fees are affected. Putting a balance transfer on a long 0% purchase card is more expensive than putting a balance transfer on a short 0% purchase card.It will be up tp you to make the best decision.
What are Student credit cards?
Student credit cards are credit cards specifically targeted to students. They are more typically offered through student bank accounts. Student credit cards are similar to credit builder cards as they accept people with lower credit scores, offer high APRs and have low credit limits to avoid you getting into serious debt.
Here are a few things you should know and consider when choosing a student credit card.
**Student credit cards are a bit restrictive: **
They tend to offer lower credit limits(usually around £500) and higher APRs are standard. Some may see these are prejudice terms and there might be some truth to that. Student credit cards also have higher minimum payments: these are the minimum you must pay back every month to ensure your credit card provider does not charge you any fees.
Note: Although paying the minimum payment will prevent you from incurring any further charges you will still get charged interest on the difference between your minimum payment and what you owe per month. This could easily turn out to be very expensive for you and should be avoided at all cost.
Student credit cards help build your credit score:
Student credit cards help build your credit score as they reflect how often you repay your monthly credit card debt on your credit file. They also reflect your credit utilization( this is how much credit you use in relation to your credit limit) and a low credit utilization will aid your credit score whilst utilizing your credit to its limit will reflect negatively on your credit file.
Avoid the ATM:
Using your credit card at the ATM will incur you huge fees up to 3% of your withdrawal and there are no interest free periods for using your credit card at the ATM. This is even made worse if you use your credit card at a foreign ATM as not only will you incur this charge you will also incur an exchange rate charge.
Credit cards have payment protection cover:
Due to the consumer credit act all goods purchased using a credit card which are over £100 are covered by the payment protection scheme. This means if goods are faulty or were not delivered, then your credit card provider must refund you. This cover does not apply to two seperate transactions not amounting to £100 separately, even if they were bought in the same store.
Finding the best student credit card:
To find the best student credit card you must compare all of them equally. A few things you should look at include:
- The APR
- The interest free period
- The rewards
- The fees and charges applicable
- The credit limit and monthly minimum payment
What are Credit builder credit cards?
Credit builder credit cards are exactly what they sound like. They help people with little credit histories and low credit scores build credit. The come with High APRs, Low credit limits and accept people with low credit scores.
You can see what cards you are eligible for an apply through a credit card eligibility platform.
As with all credit cards, ensure you make at least the minimum payment as this will help boost your credit score. You should also use no more than 30% of you available credit limit on any credit card as this will make you seem more in control of your finances.
What are Bad-credit credit cards?
Bad credit cards are credit cards targeted to people with negative credit histories.
Bad credit cards aren't necessarily a different segment but rather a grouping coined by consumers constantly searching blindly for credit cards which will accept them.
Credit card shopping has changed significantly. There is no need to blindly apply to credit card providers but you can now get instant pre approvals on the credit cards you are eligible for and you will be surprised at how many credit card providers will say yes to you.
All of this with no damage to your credit score. This is dont via a process called soft checking. In this instance a soft check is carried out on your credit file which has no effect on your credit score and only you can see that this check has been carried out.
If you are looking for a credit card but worried about your credit score then you should simply check what credit cards you will be approved for through a credit card eligibility platform.
What are Balance transfer credit cards?
Balance transfer credit cards are credit cards which allow you to move your existing credit card debt from another credit card to your balance transfer credit card without paying any interest for a set period of time(These are more commonly known as 0% balance transfer credit cards). You will usually have to pay a set fee to the balance transfer credit card provider to transfer your balance out from your current credit card provider. This is usually around 3% of the amount you are transferring. You can't usually transfer out a balance from card to another if both card providers are from the same group.
The 0% interest time gives you time to pay off your debt without paying any interest. When the interest free period comes to an end you will then move on to the card provers standard interest rate, so be sure to check this before choosing a balance transfer credit card.
If you miss your monthly repayment or your payment is late then your credit card provider can end the introductory period and move you on to their standard interest rate.
As always, the key factor for balance transfer credit cards is how long the interest free period is and if the fee for moving your balance over is offset by the savings you intend to make.
Before you decide on a balance transfer credit card ensure you know how long it will take you to pay off your current debt without any interest charges and use this as an indication of how long in interest free period you will need from your balance transfer credit card.
How credit limits affect balance transfers
You can transfer your credit card balance to a balance transfer credit card but there are some restrictions. However the maximum you can move over to your balance transfer credit card is the credit limit on your balance transfer credit card.
Example, if your new credit card limit is £5000 and your credit card provider allows you to use 50% of that for a balance transfer that means you can only move over £2500 from your old credit card.
0% Balance transfer cards
Balance transfer cards will charge you 0% on the balance you transfer in but they may offer you a 0% on purchases for a limited time or charge you their standard purchase rate instantly. The balance transfer interest rate and the standard purchase interest rates on a balance transfer card are two different things. Don't get caught out!
The great thing about a balance transfer card is that for the period in which it is a 0% interest on your balance you have the opportunity to pay down your balance( the capital borrowed) without paying any interest This means you can clear your debt off quicker than you would with a credit card which was charging you interest.
No fee or low fee balance transfer credit cards are balance transfer credit cards which charge low fees or a 0% fee for moving the balance to their credit card.
You can also use a balance transfer credit card to consolidate non credit card debt although this involves you taking out debt(paying for the debt with your credit card) on an existing card before moving it over to a balance transfer card which you are already in possession of.
Balance transfer credit cards are usually only available for people with good credit scores.
What are Money transfer credit cards?
Money transfer credit cards are credit cards which transfer money directly into your bank account and some do this for an introductory time frame with 0% interest(these are more commonly known as 0% money transfer credit cards). You will usually have to pay a fee for them to transfer money into your current account. After the introductory period is over you will move on to the credit card providers standard rate and begin to pay interest on any outstanding balance.
Money transfer credit cards act just like a short term 0% interest loan. The introductory period on a money transfer credit card can go from 3 months all the way up to 30 months. Money transfer credit cards are really handy for cash transactions.
You will need to make at least the minimum payment on your account if not your 0% introductory standard rate will kick in and you get charged for any outstanding balance.
With typical credit cards you can access cash but you will be charged a cash advance fee. You can use this as a comparison before taking out a money transfer credit card but also take the introductory period into account as well.
Money transfer cards are a good way to consolidate any debts you might have which are not on credit cards into a cheaper product for a fixed term. This could be personal loans, overdrafts etc.
What are Premium, premier or platinum credit cards?
These are credit cards targeted at a niche market. They have a strict entry criteria and look for people with over £50,000 in income per year and very good credit scores. These credit cards also have vary high annual fees ranging from £100 to more than £1000 in some cases.
These credit cards are also al unique as they offer varying degree f rewards from airline miles which are way better than the earn rate offered by standard cards to personal concierge services for booking cars, hotel, golf courses flights and much more.
Premium, premier or platinum credit cards offer very high credit limits, rarely any introductory rates and usually charge between 12% to 17% interest rate on any balance. You must be certain you can afford to pay the balances in full each month if not you will quickly pile up debt.