Credit Card Charges
If you use your credit card carefully it can be a great way to manage your finances at no extra cost; you are able to make purchases without immediately paying interest, and often do not pay charges nor interest on balance transfers. However, certain types of card will require you to pay an annual fee in exchange for particular benefits, and there are certain services that will typically incur penalty charges, including cash advances and money transfers.
Annual/Recurring Fee
Most standard credit cards do not have recurring fees or annual charges. However, some of the best interest rate deals and reward schemes are only available with cards which charge an annual fee. Some premier cards and most charge cards will carry annual fees in return for exclusive discounts, point schemes and/or benefits such as free travel insurance. If the annual fee is low and you think that you will benefit from the rewards, you should not be deterred by the idea of an annual charge. However, if you do not use a credit card often you should avoid a card that charges an annual fee.
Cash Advances
Cash Advances are essentially mini, instant cash loans charged to your credit card account. You obtain them every time you use your credit card to obtain cash or use your credit card account as a debit account. Cash advance charges apply to cash withdrawals at ATMs; bill payments, which include utility bills that you pay with your credit card; and money transfers out of your credit card account. There is always a charge for cash advances: typically a percentage fee of between one and four percent of the cash amount or a flat-fee, for example three pounds.
Balance Transfer
If you move the outstanding balance you have on any other credit card to a new card you will usually incur a handling fee. This is typically a small percentage fee, for example three percent of the total balance. Often there will be a minimum fee amount, such as three pounds. Interest-free balance transfer deals will also incur this handling fee, but the savings you make in interest charges will usually mean that the transfer is still the better deal.
Use of Your Card Abroad
Any use of your credit card abroad is likely to incur an additional charge. Any transactions that require foreign currency exchange, for example from euros to pounds sterling, will incur a percentage conversion fee. This is typically 2.75 % and also applies to purchases of foreign currency or travellers' cheques charged against your credit card. For more details see Using Your Credit Card Abroad.
Default Charges: Exceeding Credit Limit / Rejected Payments / Late Payment
When you have reached your credit card limit, some card providers will reject any new payments you make with your credit card. There is usually a penalty charge for this, typically of around twelve pounds. However, some providers will allow you to exceed your credit limit by a reasonable amount, thereby honouring the new payment. Nevertheless, they will still penalise you for this by increasing the interest rate that applies to any amount over the credit limit and/or issuing a flat-rate fee which is again typically around twelve pounds.
Summary Box
Every UK credit card company publishes the terms, conditions, charges and features of their credit card in a standard summary box. The summary box is featured on their website and in credit card leaflets. Each company uses the same general format, layout and terms. This makes it easy to compare the features of different credit cards, such as interest rates and fees. You should look at the summary box of a few different credit cards before you apply for a card.
