To get the most out of comparing credit cards and ultimately choose the right one for you, it is important to understand the different features that are included within credit card deals.
Your credit limit is the maximum balance amount you are allowed on your credit card at any one point. This limit will be calculated by the card issuer and is dependent on various factors, mainly your credit score and your annual income. Some premium options do offer no-limit credit cards.
What happens when you go over your limit will vary from issuer to issuer but at a minimum, you will be charged an additional fee and your credit score will be affected. Other penalties might include increased interest rates, reduced credit limit and freezing your credit card until your balance is back within the maximum amount allowed.
On most credit cards there will be a set monthly or annual fee, also called an ‘admin fee’. Some providers might waive this fee for 12 to 24 months as part of the signup deal.
A balance transfer fee is levied when you transfer your balance from one credit card to a new one and is a percentage of the transfer amount. This rate is usually between 2 and 3% but can be as low as 0% on low- or no-fee balance transfer credit cards.
Additional fees are also levied when you withdraw cash from an ATM, exceed your credit limit and use your credit card abroad (except specific overseas spending credit cards).
The interest charge on a credit card will be shown as ‘APR’. APR stands for Annual Percentage Rate and this is what you’ll pay to the card issuer on top of the money you borrow. The APR includes the credit interest rate as well as any fees and is averaged out over 12 months.
It is important to remember that you are not guaranteed to receive the representative APR. A minimum of 51% of successful applicants will receive this rate but you may get a higher rate.
Credit Cards often carry an interest-free, grace period during which no interest will be charged on an outstanding balance. It can also be seen as the period from when the billing cycle closes to when the outstanding amount is due on that bill. The period varies greatly between card issuers and can be anything from 21 days to 60 days.
You will benefit from grace periods if you pay your balance off in full every month as it is only applicable on new purchases and, in most cases, not available on cash advances or balance transfers.
Credit cards are secured by a chip and pin system for physical payments and by a 3 digit security code for online payments. If a fraudulent transaction does occur, your bank or credit provider has to refund you unless they have an adequate reason for refusing such a refund.
You can also get protection for any purchases you make up to £30,000 through the Consumer Credit Act. It doesn’t cost anything extra and provides protection against merchants failing to provide goods and services after purchase or where the product doesn’t have the same features as advertised (misrepresentation).
Reward cards are a good way of getting compensated for making purchases with your credit card. The type of rewards will vary but may include cashbacks, air miles and loyalty points.
These rewards will either pay you back a percentage of your purchase at particular retailers or reward you in points for discounts and vouchers.