Introduction to Credit Cards
A credit card is an electronic, plastic card which gives you the option to buy goods and services but pay for them at a later date, thus offering you a flexible way to manage your expenditure. When you buy something using this card, the credit card provider pays for your purchase. At the end of the month you are sent a statement detailing the transactions on your account; you can choose to pay off the total outstanding balance immediately, or pay off the balance in installments over an extended period of time. If you do not pay off the total balance immediately, you will be charged interest on the remaining balance until it has been paid. Credit cards are a very popular method of payment in the UK. There are more than sixty million credit cards in circulation in the UK at the moment, and billions of pounds are spent on these each month*.
Credit cards have three main functions. You can make purchases, paying for goods and/or services both in stores and online; you can transfer outstanding balances from one credit card to another; and you can withdraw cash from cash machines. You can make as many transactions as you wish, as long as you do not exceed your credit limit. Your credit limit is determined when you apply for the card, and is based on your credit history, see Credit Rating, and current financial status. It represents the total amount you can charge to your credit card. When you apply for a credit card you will be informed of the interest rate, which determines the amount of interest charged on your outstanding balance. This rate varies between credit cards and card providers. For more details see Interest Rates.
In addition, you may also be charged for using certain services, or for failing to abide by the terms and conditions. For example, you will typically be charged for using your credit card abroad. If you consider that you may incur fees on a regular basis, perhaps because you regularly travel abroad, you should shop around before applying for a credit card to find one which offers low fees or does not require you to pay charges. For more details see Credit Card Charges.
If you use your card safely and sensibly, you can protect yourself against fraud. You should follow the fraud protection guidelines provided by your credit card issuer, to ensure that nobody else can use your card to make fraudulent payments. Managing credit card debt can be difficult if you do not use your card sensibly. You should always aim to repay as much of the outstanding balance as possible if you wish to avoid costly penalties. For more information about credit card debt management see Managing Debt.
* Based on data from www.bba.org.uk.
