Beginners Guide to Credit Cards

So you've got a credit card offer through the post and you're tempted to apply, but you don't really know that much about credit cards in general. Below you'll find a quick guide to help you decide whether or not to make the application.

Credit card terms you should understand

• Credit limit – this is the maximum amount of money you are allowed to spend on your card before incurring charges. Most new credit cards come with a relatively small credit limit of less than £1000. Using your card wisely however will often entitle you to regular credit limit increases.
• Balance – this is the amount you owe on your credit card at any given moment.
• Minimum payment – this is the smallest amount you can pay off your balance each month without incurring a charge or falling into arrears. Each month's minimum payment will be clearly displayed on your statement, along with a due-by date.
• APR – this is the interest rate that is charged on the balance that you owe. Interest is charged monthly and is included in the minimum payment you have to make. Occasionally a lender will offer credit card deals that entitle you to a 6 or 12 month interest free period on purchases or balance transfers.

The benefits of having a credit card

There are numerous benefits associated with credit cards, not least of which is that you always have a source of money available in an emergency. Many credit cards also come with opening 0% balance transfer offers. These offers allow you to transfer high interest debts e.g. bank loans, store cards etc. onto your credit card where you then pay 0% or a very low interest rate for a fixed period of time. Obviously the terms and conditions attached to your particular credit card offer will need to be read thoroughly as they do change from one provider to another.

The information provided above is very basic but hopefully it will help you decide whether to make the application or not. Do bear in mind though that each application you make gets recorded on your credit report, and too many applications in a short period of time can count against you when being assessed.

People who read this article also read:

1. Best Balance Transfer Card Practices
2. Are Debit Cards Better Than Credit Cards?
3. How to Use Credit Cards to Improve Your Credit Score