A credit card allows you to borrow money from the bank to buy goods. Whether you’re purchasing a sandwich for lunch or flights for your next holiday, a credit card will provide you with the money on credit. It’s important to know that as well as the potential perks and benefits available through credit cards, there are usually costs to borrowing the money. Interest and fees are charged on outstanding cash after a 25-30 day payback period.

When someone is looking to apply for a credit card they will make an application to a bank or building society. Your credit history will then be checked and if you have a low credit score the application may be refused or offered to you at a higher interest rate than was originally advertised.

Standard Credit Cards – These are the most basic types of credit cards and don’t come with any perks or benefits. They are helpful if you are looking to make one-off purchases that are outside of your income bracket. Credit Builder Credit Cards – These are designed to help people out of a bad credit rating, by paying off the balance regularly. 0% Purchase cards – These offer 0% interest on any money spent. However, after this time the interest rate will be higher than standard, so make sure to pay off the full amount before the period ends. Reward Cards – These offer you points every time you spend. This can be then claimed back on purchases such as flights or hotels. However, be warned that reward cards often have far higher interest rates, which mean that if you don’t make the repayments, the rewards are negligible. If you are concerned about owing money on your credit card we would recommend choosing an option with lower interest rates. Store Cards – These cards will offer you cash back every time you spend money in the store.

Credit card companies make their money in three main ways: Transaction fees charged to merchants – Everytime you make a purchase, the merchant is charged a fee. Interest payments – When customers don’t pay off their debt in full. Fees on late payments – Every month that you don’t make the minimum repayments you are charged a fine. Foreign transaction fees – Customers are charged a fee when they use the card abroad. Cash advance fee – You may also be charged when you withdraw money from an ATM.

Often you are able to earn rewards and cash back on your spending. It is a far cheaper kind of debt and the interest rates are relatively low. They are relatively easy to get, subject to terms and conditions. Credit cards enable customers to build up their credit rating as long as repayments are made on time. On most credit cards you are able to borrow money for nothing as most purchases are interest-free for a period of around 56 days. This means if you pay the balance off every month, you will not have to pay interest. If your card is lost or stolen you can cancel it immediately. If you make a purchase, such as a flight, and the company becomes insolvent, you would be able to claim the money back on your credit card. This is thanks to Section 74 of the Consumer Credit Act which protects you should a company fail to deliver on their service or product. Using a credit card allows you to spread the cost of a purchase.

If you miss a payment or a payment deadline you will need to pay a penalty charge which puts a mark on your credit rating. There is a charge for exceeding your credit limit which means you have to be incredibly diligent when you are using your credit card. Customers have to pay a fee when they withdraw cash using a credit card. Owning a credit card unfortunately makes it extremely easy to get into debt, which can be difficult to get out of. Interest from even a small debt can escalate over time.

Over the phone: by calling your card provider. By cheque: sent in the post. Bank transfer: You would have to set this up manually and it will come out of your account every month.

One option is to move the outstanding balance to a new card that will cost less to replace. This can really work to your favour as most credit cards offer 0% interest for at least the first few months, and in certain situations for the first few years. This is known as a balance transfer and essentially offers you more time to pay off your debt, before generating a huge amount of debt.

There are two main times at which using a credit card reaps benefits. Flights and holidays Under Section 75 even if the travel company went bankrupt, you would be able to get your money back if you paid with a credit card. This would not be the case with a debit card. 2) Supermarket shopping Many supermarkets offer compelling rewards in the form of points when you use credit cards, which means if you pay off the balance every month you could save substantial amounts.

Income: First and foremost you need to consider your income. The higher your income, the more likely you are to gain access to more competitive interest rates. Credit score: This will also influence the type of card available to you, as the stronger your credit score the better terms will be available to you. As a general rule, an Experian score of 560 is the minimum required to gain access to a standard credit card. Age: You need to be over the age of 18 to get a credit card. However, if you only just meet this threshold you may not have a credit rating and will need to consider a credit builder credit card to help you improve your credit score and allow you to qualify for better details. Hobbies: If you travel abroad or visit a specific shop a fair amount you want to look for a credit card that rewards you for doing this. Finances: If you are going through a difficult financial situation, then you may well be better off getting a 0% purchase credit card, as once you spiral into debt it can be incredibly difficult to dig yourself out.

When you are searching for a card there are certain factors you must pay special attention to as they can have a serious impact on determining which card is right for you: Credit limit – Your credit limit is the absolute most you are able to owe on your credit card at any period of time. This amount will be calculated by your card issuer and will depend on a number of factors including your credit score and annual income. If you do go over this limit you will be charged an additional fee and it may well affect your credit score. Credit card fees – Most credit cards will have a monthly or annual fee as well as charging fees when you withdraw from an ATM, go over your limit or use your credit card abroad. Interest rates: These are known as Annual Percentage Rates (APR) and detail what you will pay to the card issuer if you owe money on the card. Grace period – Certain cards may offer an interest-free, grace period that means you don’t have to pay interest on money owed which can be anything from 21-60 days. Rewards – Reward cards offer cashback, air miles or loyalty points when you spend a certain amount with your card. If you are struggling to make it to the end of the month and looking for some financial aid please do check out our dedicated loans page.