Credit Cards Explained:

If need a credit card for whatever reason, there are a number of factors you need to think about before you take on.

If you are not planning to pay off the amount you put on the card each month then the most important factor will probably be the interest rate charged. Credit Card companies can be confusing with talk of balance transfers and apr's so here's a basic guide.

1. Introductory Rates
2. Interest Rates
3. Balance Transfers
4. Purchase Credit Cards
5. Cashback Card


1. Introductory rates: many credit card providers offer an introductory rate to attract new customers. This introductory rare will be for a certain period of time and will be the interest you pay on the outstanding balance every month. The introductory rate can be as low as 0% and the introductory period can range from a month to a year.

If the introductory rate is quoted, you need to note a few things:

How long does the introductory period last? Is it until a specified date or for a set period after you receive the card? If a specific date is quoted then the time to receive the card and transfer the balance taking up your "free time".
What does the introductory rate relate to? Is it for transferred balances only, new purchases only or both?
What will the interest rate be after the introductory period?

If you are really organised, you can go from card to card taking advantage of the 0% introductory rate offered by each card, this is completely legal and above board - the companies just hope you don't care enough or forget.

2. Interest rates: The interest rate is the amount you pay of the outstanding balance on the card over the year - depending on the credit card you will pay the interest either from the transaction date or from the date of the statement.

Credit cards which calculate interest from the statement date and only impose the interest if you do not settle the statement in full are preferable. In practice, this means you can get a maximum of 56 days interest free credit; the transaction can be up to 31 days before the statement and the card issuers usually allow a further 25 days for payment to be made.

Interest rates can vary hugely and these should be your main concern. Interest rates can be as low as 6.9% and can be as high as 17.9%. A variable interest rate means that the rate can vary depending on the performance of the economy - ie the interest rate set by the Bank of England)

For 6.9% this means that for every £100 unpaid on your credit card, you have to pay the company £6.90, so for £1,000 you'll be paying out £69.

3. Balance Transfers: Most credit cards allow you to transfer a balance from one or more other credit cards and this is called a balance transfer. Companies often offer a lower rate for a new customer and a higher rate should you try and move credit cards. If the interest rate applied after an introductory rate is less than the cost to transfer the balance to another credit card company, you should consider this before you move providers.

4. Purchase Credit Cards: Often the enticement to use the card is to offer a 0% introductory offer which means you don't have to pay any interest on anything you buy with the card. However to compensate for this they may sting you with a a high balance transfer or interest rate after this period you use.

5. Cashback Card: The enticement for a cash back credit card is that when you purchase an item can get a certain amount on top of the items value as cash. This will obviously benefit the credit card company as the more you borrow from them, the more interest you will pay if you're not in a interest free introductory period.