Credit cards: the basics

Are you looking for credit cards? If so, you may wish to do some research instead of signing up to the first deal that you receive a flyer for.

Different types

Once you get into the subject, you may find that there are more types of credit cards than you ever imagined. For example, you may wish to choose between:

• reward cards (where the credit card holder “earns” rewards in the form of vouchers with every pound that he or she spends on the card);
• cash back cards (where the card holder gets cash back at a certain percentage of the amount that they spend);
• balance transfer deals (where balances transferred onto the cards are only charged a limited interest rate for a certain period);
• premium cards (which offer enhanced services, typically in return for a certain monthly fee); and
• charity cards (where the charity of your choice receives a donation equivalent to a certain percentage of your balance.

What to take into account

When you are choosing which card to get, you may wish to take into account how much the borrowing will cost you. This may not be as simple as comparing interest rates, as some card providers may offer discounted rates for an introductory period, only to find that they revert to a higher rate when that period is up.

Likewise, some cards may have low interest rates, but less attractive transfer fees or monthly management fees.

When you read about the extra benefits a card can give you (like high street vouchers or money off your food shopping), you may wish to weigh up whether the benefits you receive from these outweigh the benefits of switching to a card with a lower rate of interest.

Who can get one?

Like any form of borrowing, credit cards are available only subject to status. This may involve the card company looking both at your level of income, your existing commitments and your credit history. If the card company does grant you a card, those factors may be taken into account when they decide what interest rate to charge.

Many financial institutions offer credit cards, so you should be able to find something that meets your own particular needs whether you want a balance transfer, reward or some other type of credit card.

A guide to reward cards –what are they and how do they work?

If you are looking at getting a new credit card right now then you may have already seen a lot of different options to choose from. Although all credit cards may seem to work in much the same way many nowadays will come with special deals or incentives to try and get you on board. In recent years, for example, reward cards have become a lot more popular. So, what do these cards do that other credit cards don’t?

Reward cards, as you might guess from their name, give you ‘rewards’ when you use your card to spend. In some cases they may be known as loyalty cards. The rewards that you are given may, for example, work on a rewards program that allows you to earn points every time you buy something with the credit card. There are various ways that this can work depending on the rewards scheme that you choose. So, for example, you might choose a card that:

• Gives you a cash reward — in this instance your reward might be a percentage cash payment based on how much you spend on your credit card.
• Gives you a general points reward — here you may be awarded ‘points’ as part of the program when you spend. What you earn here may be redeemed via a central company although you may be able to use your points to buy different things from different retailers through it. So, for example, you could go online to the points company to use your points to buy things from different companies via their site.
• Gives you a company specific reward — in this case rewards cards are specifically tied to the company that gives out the card. So, for example, your spending may earn you points towards spending in a supermarket, department store, hotel chain or on travel costs. In some cases these cards may also offer options with other companies/offers that they have set up a link to so you may be able to use these rewards to buy other things.

Reward cards may look like they give you a good deal on paper. After all, if you are spending money on a credit card anyway it seems a good option to get something back as a reward for your spending. In some cases, however, you may find that the interest rates charged on these cards are higher than those given on standard ones.

This may not, of course, be an issue for you. If, for example, you always pay off your balance in full every month then the interest charged on reward cards might not even apply to you in the first place. But, if you sometimes or even always carry a balance over from month to month then the interest you’ll be charged might be more of an issue especially if the rewards you are given work out to be worth less than your interest charges.