Understanding your energy usage
Baffled by some common credit card terms? We help clear up any confusion.
The ‘annual percentage rate’ is the rate you get charged when you take out a credit card. It is the cost of borrowing money over a year.
This includes not only the interest on the card, but also any other charges you might have to pay, such as an annual fee. You should use this figure to help you when comparing credit card deals.
Be aware that while the typical APR is a useful guide to the amount of interest you are likely to get charged, the actual rate could be higher, depending on your credit score and financial circumstances.
The minimum is the smallest amount your credit card provider stipulates that you must pay back each month on the amount you have borrowed. If you don’t pay this, you’ll be fined an instant penalty of around £12. This will damage your credit record, too.
While this is the legal requirement, you should aim to pay off more than the minimum if you possibly can, as this will bring down your bill a lot more quickly and mean you pay less interest.
Better still, clear the balance in full each month and you’ll pay no interest at all.
This is the maximum amount you can borrow on your plastic at any one time.
When applying for a credit card, the lender will take several factors into consideration when deciding what credit limit to offer you. This includes your credit history, how much you earn, and what debts you have.
Make sure you know your credit limit, and don’t exceed it. If you breach your limit, you risk incurring a typical £12 fee. You also risk damaging your credit record.
Generally speaking, it’s best to try not to use more than 25% of the credit available to you. If you max out you card, you risk harming your credit score.
These are charges applied to your balance should you miss a minimum repayment or if you use your card to withdraw cash. These charges are also added to your account when you breach your credit limit (see above). Typically, a default charge will be around £12.
If you fail to use your credit card carefully, unnecessary default fees could soon mount up.
Promotional rates are a perk offered to try and tempt new cardholders to open an account.
You might, for example, be offered a temporary rate of 0% on purchases or balance transfers – or both.
At the end of this introductory period, you will be moved to a higher rate.
Your eligibility for such rates will depend on the card company’s criteria, as well as your circumstances.
Note that while a 0% credit card can be attractive, you must manage your card carefully and clear the debt before the introductory offer expires. If not, you could suddenly find yourself paying a hefty APR.
Also be aware that if you fail to stay under your credit limit or fail to pay at least your minimum amount on time each month you risk having your promotional offer withdrawn.
You can use one of these cards to move debts you already owe on an existing card onto a new card with a lower APR – or zero interest for a period. This 0% period could be as long as two years or more. This type of card can be very helpful when trying to clear old debts, putting you back in control.
Note, though, that many cards levy a transfer charge of up to 3% of the balance. Remember to factor in this fee when comparing balance transfer deals.
This is similar to a balance transfer card, but rather than move a balance from one piece of plastic to another, the money is transferred straight into your current account. You can use the money to pay off your overdraft – or simply to boost the amount in your account. Crucially, though, you must not see this cash loan as an excuse to go out and spend more money.
As with a balance transfer card, you need to watch out for money transfer fees.
A cashback card pays rewards on your spending. You may, for example, be able to earn cashback on particular items or in certain stores. With some cards, you may be able to earn on everything you purchase.
Cashback can come in different forms, such as reward points, or a percentage of what you have spent.
This can be a great way to get more for your money.
But only opt for a cashback card if you can be confident about being able to clear your bill in full each month.
If not, any interest you get charged could outweigh any cashback you earn.
You can use contactless to make low-value touch-free payments without having to type in your PIN number.
This quick and simple type of payment involves you tapping or waving your card over a reader which then accepts the payment.
Contactless-enabled cards will have a small chip – just look for the symbol on your plastic.
Most shops now accept contactless. These payments are just as secure as using a chip card at a chip-enabled register.
Credit cards offer protection under what is known as Section 75 of the Consumer Credit Act. This safety net applies to purchases costing more than £100 and up to £30,000. It means you get redress if a retailer goes bust or if the goods you’ve bought don’t come up to scratch – giving you added reassurance.
It’s worth noting that Section 75 applies even if you only used your plastic for part of the purchase.
To start a claim, you need to contact your credit card provider directly.
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