What You Need to Know About Credit Cards
When used correctly, credit cards can be a useful addition to your finances. Giving your access to money when you most need it, simply paying it back every month and keeping on top of the payments can give you a boost when you most need it.
If you’re thinking of applying for a credit card, there’s a few things you should think about first.
What is APR?
This stands of annual percentage rate, and informs you of how much interest you will be charged on your debts per year.
For example, a credit card which charges an APR of 26.82% per year works out at 2% interest per month, which is usually higher than the norm for many mainstream credit card providers.
As a rule, advertised APR rates should be used as a guide only. Unless you have a squeaky clean credit rating, you will probably be required to pay a higher rate. Those with very poor credit ratings may not get accepted for a credit card at all.
Anyone with a poor credit rating will have a history of not paying off debts and bills on time, multiple dormant bank accounts and credit cards and a succession of failed credit applications. If this doesn’t apply to you, then you’re likely to have a good or great credit rating, which will make applying for cards and paying APR easier.
A balance transfer fee applies when you move the balance from one credit card onto another. Some credit cards offer a 0% balance transfer fee, but usually only within a certain time frame.
Money transfer fees refer to moving money from a credit card into your bank account. They tend to be higher than balance transfer fees.
Why are you applying for a credit card?
Before applying, it’s a good idea to think about why you feel you need one. If you’re having financial difficulties, a credit card may not be the best option, as if you are unable to keep up with repayments you will affect your credit rating.
A spokesperson from Yorkshire Building Society offers this advice regarding credit cards:
“Set up a regular savings account and shop around to make sure you get the best rate. Ensure that you are on the electoral roll as this can improve your credit score.
“Review your day-to-day spending to see if you can make any cuts to increase you’re saving, then set up a budget for essentials and stick to it”
If you use your credit card at an ATM, you are likely to incur a charge for doing so, usually a percentage of the withdrawn amount. Most cards also charge a cash withdrawal fee in addition.
Credit reports and your credit rating
In order to be accepted for a credit card, you need to have an adequate credit rating. Most lenders won’t accept your application if your rating is poor.
You can get more information regarding your credit rating from Experian.