Credit Cards - What Are They - How To Use Them

Someone who uses a credit card and pays their balance off in full every month is not viewed as a particularly good customer by the a credit card company. However somebody who uses their card to borrow money, preferably keeping the debt rolling for many years, is a very valuable client.

Although it would be impossible, the most profitable move the card companies could make would be to deny cards to people who run their accounts responsibly!

The aim of this guide is to show that when it comes to good personal finance having a little knowledge of how Credit Cards work can be extremely useful and can save so much money.

You will learn the advantages and disadvantages of Credit Cards alongside the important tips and tricks to getting the right deal.

The Different Types Of Credit Cards

There are four main types of plastic, with a fifth, Smart Cards being in the experimental stage.

1 - Traditional Credit Cards

• The most common type of Cards, usually issued by individual banks, all having the Visa or MasterCard stamp
  
• Platinum Cards, Gold Cards, Cards with pictures of little dogs - all of them work in the same fashion

2 - Charge Cards

• These cards do not offer credit and the full balance must be paid at the end of the month
  
• American Express and Diners Club are the main ones
  
• Charge Cards are mainly issued to company employees to pay for expenses etc

3 - Store Cards

• Boots, House of Fraser, Selfridges etc offer their own in-store credit cards
  
• These Cards can be used just like a traditional credit card, ie they can be used for purchases outside the actual issuing store
  
• Their selling point is that they offer special loyalty points or various special offers, although this only applied on goods purchased in the issuing store
  
• Store Cards are usually bad value because of their high interest rates. A traditional type card offers a much lower rate of interest
  
• Store Cards are often aggressively marketed. Don't forget that a good rule of thumb in Personal Finance is that any financial product that's pushed hard is always going to be a bad deal for you but a great deal for the person or company selling it

4 - Affinity Card

• These are either Visa or MasterCard branded Cards offered by a charity or perhaps your favourite football club
  
• Help the Aged have a credit card in which they receive £15 per every account opened and a further 25p out of every £100 spent
  
• However, you are not dealing with the charity itself, rather the credit card company which kicks back a proportion of cash direct to the charity
  
• Overall these are bad value cards - See this FAQ for more information.

5 - Smart Card - Sometimes called Contactless Smart Cards

These are the new style of plastic and are being tested on a worldwide basis.

A smart card is a piece of plastic with a programmable chip instead of the normal magnetic strip. Because of the chip it can be many cards built into one. For example, if you have 3 credit cards and 1 debit card, a Smart card can programme all of these on to the one card.

When you want to make a purchase you can decide which account to use. Banks are starting to like Smart Cards because they have better fraud detection.

Smart Cards are the future of Credit Cards so look out for them over the coming years.

They sometimes called Contactless because to pay for goods or services the card theoretically doesn't need to come out of your pocket. The card beams its information out which is picked up by a receiver, perhaps in the till at Tesco's.

If you've ever been to London and tried or seen the Oyster Card, that's a classic example of a contactless Smart Card.

In 2007 Barclaycard partnered with Oyster to introduce the OnePulse card. This can be preloaded with money and used to pay for goods and services under £10 by waiving your card over a touch pad, the same as using the card to move through the barriers at a tube station.

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The first step is to understand how interest rates work. If you can do this you can manage your money and spending correctly. But if you don't understand this important topic, interest rates and subsequent borrowing can easily have an enormous impact on your life.

An interest rate example

• Take out a loan of £10,000 at an interest rate of 5% and make no repayments till the 5 years is up
• The interest bill after year 1 will be £500, which is added on to the original £10,000
• Interest for year 2 is now charged on £10,500 which amounts to £525, the loan is now £11,025
• After the 5 years the full amount payable will be around £12,750
• But this example is based on a rather low interest rate of just 5%
• If that's doubled to 10% the amount payable after 5 years becomes £16,105
  

However, the interest rate charged by most credit cards is in the 15% - 20% range. And it's not uncommon to find some cards charging nearer 30%, some even go as high as 60%.

So if you ever use a credit card for borrowing always try to do the following -

1. Try to get the lowest interest rate possible, and
2. Aim to pay back the debt in the shortest time possible

What is APR and why it's so important

Financing and other forms of lending are complicated for most people to understand. Even if armed with the exact formulas the finance companies use, most of us would still be completely lost. These are not calculations you can do with a simple calculator.

Governments and the Financial Regulators recognised this and passed laws to offer consumers some safeguards and protection, theoretically enabling us to compare different interest rates and other associated charges.

• The Annual Percentage Rate (APR) attempts to create a single figure of interest and finance charges so the consumer can compare like with like
• The main point with APR is that it not only considers the interest rate charged but also other associated costs and fees

Without APR it would be impossible to make quick comparisons between different financial products as all finance companies use different calculations to calculate their interest and charges.

Financial figures are easily exploited by clever marketers so the government, by forcing them use APR, creates some order to the madness.

APR does not always help

APR is far from perfect when it comes to comparing different Credit Cards. Yes, it does offer consumers a better understanding of general financing but it's still very much open to manipulation.

And this is done via how interest is calculated on your credit card spending.

There are 3 different ways of calculating the interest bill on debt balances. Depending on which method used it's possible for a card with an APR of 14% to be more expensive than one with an APR of 18%.

• FAQ section - How to reduce your monthly interest bill

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The 3 main ways of calculating Credit Card interest

1 - Average Daily Balance

• The most common calculation method used
• The issuing company tracks your balance day by day and adds charges (purchases) and subtracting payments as they occur
• To get your finance charge they take the average of the daily totals and multiply this by the monthly interest rate

2. Adjusted Balance

• This is usually the most advantageous method for credit card holders
• Your balance is taken from your previous statement, new charges are added (purchases etc), and payments that you made are subtracted
• This figure is multiplied by the monthly interest rate

3. Previous Balance THIS MUST BE EXPLAINED BETTER

• This considers the amount that you owed at the end of the previous billing period
• Payments, credits and new purchases during the current billing period are not included
• This means that you can still be charged interest on your debit balance even after you've paid it off!
• The previous balance method is a classic example of just how sneaky finance firms can be

So which interest calculation is best?

• Adjusted Balance type Credit Cards are the best for people that regularly carry unpaid balances forward
• Average Daily Balance strike a fair balance between the card holder's interests and those of the card companies
• Previous Balance is bad news for anyone with a Credit Card and in many ways seems very unfair

How to find out the method of interest calculation your credit card uses

To find out which one a credit card company uses, ask to speak to customer support services. If they can't help, ask to speak to a supervisor.

• FAQ section - How to reduce your monthly interest bill

The Difference Between Variable and Fixed Rate Interest Rates

Most credit cards charge interest at variable rates, while some offered fixed rates.

Variable Rate

• You might apply for a card today that offers a variable 12.9% interest rate but as the name suggests this can vary
  
  
• At any time in the future the card company can either raise or lower the rate you're charged, regardless of whether official Bank of England interest rates move or not
  
  
• In 2008/09 interest rates in the UK were slashed from around 4% to nearly 0% but most card companies raised their interest rates to try to increase profits

Fixed Rate

You would think Fixed Rate is self-explanatory. Take a card out with a 14.9% fixed rate and whatever happens to the economy or interest rates your rate is fixed at 14.9%.

But financial service companies, and especially credit card ones, love to play tricks and games.

So buried in the small print will be clauses that say something like 'although this card offers a fixed rate of interest we can still raise or lower this should we choose to'.

And of course as consumers we have signed and accepted the Terms & Conditions and there is nothing we can do.

How To Pay Your Credit Card Bill

Paying your Credit Card bill is simple, there are 3 choices -

1. Pay the full amount by the due date (always better to pay it a week early so the money has plenty of time to clear)
   
   
2. Pay the minimum amount by the final payment date, interest is then charged on the balance
   
   
3. Pay an amount higher than the minimum amount but lower than the full amount. Interest is obviously charged on the remaining balance

Option 3 is interesting and deserves a full explanation

Say you've spent £1,000 on your card this month and only pay off £950 at the end of the month. So you've 'borrowed' £50 and interest will be charged on £50 in next month's statement - WRONG.

Most people will have fallen into a classic trap that they don't realise. This is because if you fail to pay off the full balance every month interest is charged on the full debit the following month

So in the above example you won't get charged interest on £50, rather the full £1,000 even though you've already paid £950.

This makes settling your bill in full at the end of every month even more important.

As for paying the actual bill there are a few options -

• Online option 1 - if you've signed up to internet access for your card you can pay it via the website
• Online option 2 - Credit card bills can also be paid via your bank's website
• Post - Post a cheque in the envelope provided with your account
• At a bank - The monthly statement also comes with a paying in slip to use at a bank, but you will be charged a processing fee if you do not have an account there
• Via phone - Call them up and either speak to a real person and pay via a debit card or most offer the facility to use an automated payment feature where you use the phone's keypad to type your details in

What happens if you're late paying the bill

Every credit card statement has to be settled, by at least the minimum amount (usually 2% - 3%), at a set date every month, for example by the 20th.

If you fail to pay by this date it's not good news for 3 reasons -

1. You'll be billed a late payment charge of around £12
   
   
2. The Credit Card company inform the credit agencies (such as Experian) of your payment record. If you make a payment by the correct date you'll receive a small positive tick, pay late and that will turn into a small negative tick. Continue to be a late payer and those negative ticks will add up and you may find it hard to get accepted for credit (credit cards, loans, mortgages, 0% deals from shops etc)
   
   
3. Be a chronic late payer (missing say more than 4 payments in a year) and you could find your interest rate raised, and raised considerably

Important - Miss a single payment on a special offer Credit Card and the deal is OFF

0% credit cards or ones with discounted interest rates are all examples of special offer credit cards. Buried in the small print of these cards will be a clause to say that if you miss even 1 payment, by just 1 day, the deal is off.

This normally means the interest rate is raised from say 0% to 18.9% (or higher) immediately. There is nothing you can do about this, the card companies will normally always play hardball. cost.

A golden rule with these kinds of special offers is therefore to make sure you never miss a payment. Do this by either setting up a direct debit to automatically pay at least the minimum, or pay the bill as soon as it comes through the post.

• FAQ section - How to reduce your monthly interest bill

• They're free if used correctly
  Generally Credit Card companies don't charge any fees if money is repaid on time. Most don't charge an annual fee, although some are starting to levy them. If your provider wants to charge you an annual fee take your business elsewhere.
  
  
• Spend now pay later
  If you pay off the full balance at the end of the month then you've earned 'free' money. This is because Credit Card bills are settled a month in arrears, the so-called grace period. Time your purchases right and it's possible to get up to 60 days of interest free credit.

• Purchase Protection - Buy some faulty goods with your credit card and they'll normally be 100% insured for a specific period. Insurance also sometimes offers cover if the item is lost or stolen. It is important to check to see what cover is available because some Cards are far better than others, with some companies offering no protection at all.
  
  
• Loss Protection - There is far more security for paying for goods with a credit card than with cash. Should your card be stolen it just takes a simple call to your provider who will put a stop on it and issue a new card.
  
  
• Use a card to rebuild your Credit Rating - Having a good credit file is so important as it offers you financial options. Financial options improve your chances of being offered loans or finance for a mortgage, a loan, another credit card, 0% deal on a TV offer etc. One way to improve a credit rating is to ensure that your monthly repayments on a credit card are always up to date, so building up a responsible profile with the credit rating agencies - See help on improving your Credit File
  
  
• Security - If you lose your Card or it gets stolen you are by law only liable for the first £50 if the card is used by a third party. However your PIN number should be kept safe - the best place is in your head - and not written on the back of the card. Amazingly plenty of people actually do this.
  
  
• 0% Balance transfers - These enable you to transfer a balance from one Credit Card to a different one that perhaps is charging less interest, usually for a specified period of time. Note there is a one-off fee charged, normally 2.5% of the amount being transferred. More details on this FAQ.
  
  
• Free travel insurance - Often when you buy an airline ticket or a holiday using your credit card you'll get free travel insurance. Always check what's on offer with your individual Card as the insurance offered is normally not as comprehensive as if a separate stand-alone policy is bought.
  
  
• Travel Advantages - Spending money when abroad via a credit card is normally far cheaper than using cash obtained from a cash machine, but it can still be expensive if you don't have the right card - See this FAQ for more information. Also, when you use your card abroad there is the added bonus of protection should the goods be faulty or lost.
  
  
• Monthly Spending Analysis - It is far easier to monitor how your money is being spent by analysing your credit card statements, rather than trying to keep a track of where your actual cash went. This makes it possible to see if you're spending too much on certain goods and services, perhaps for example you can cut your weekly supermarket bill by 10%.
  
  
• No cash needed - You don't have to carry around much cash if you have some plastic in your wallet.
  
  
• No plastic = No sale - Many purchases these days such as Car rentals or Hotel bookings won't accept your business unless you have a Credit Card. You can of course always settle your bill in cash but the Card is needed as a deposit.
  
  
• Points or Rewards - Many cards offer cash back or points such as Airmiles or gift vouchers. These often are not that much of a selling point if you spend only a few hundred pounds per month but if you're a big spender then reward style cards can be great

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• Number 1 problem - Interest Rates - The rates charged of normally between 15% and 30% make borrowing money via a Credit Card extremely unattractive and expensive. See FAQ section - How to reduce your monthly interest bill
  
  
• Interest is not always calculated in the same way - When comparing interest rates most people look at the APR (Annual Percentage Rate). However there are ways of circumventing APRs whereby it is more expensive to borrow on a Card that charges interest at 12% rather than one which charges 15%. See the main Credit Card guide for more information on how interest is charged and calculated.
  
  
• Low minimum repayment levels - These used to be 5% but now have reduced to around 2%. Is this the Credit Card companies trying to help some of their indebted customers or a cynical move to generate more profits? The answer of course is the latter. If you pay 5% a month your debt is repaid in a shorter time than if you pay 2% per month which will take correspondingly longer to repay.
  
  
• Credit Card Cheques - Pure evil. They encourage you to spend more at very high interest rates. The only strategy worth following with these is to rip them up as soon as they arrive in the post. Often these cheques are even more expensive to borrow on than spending on your card. They also charge interest from the time the cheque is used and often charge a handling fee of 2%. Also note that when you use credit card cheques you're not offered the same protection under Section 75 of the Consumer Credit Act. Overall these are probably in the top 3 of the worst products in the Personal Finance world.
  
  
• Sometimes buying goods/services is more expensive - Ever booked a flight? Pay by a Debit card and it is one price, pay by a Credit card and the price is usually 3% higher.
  
  
• Payment Protection Insurance (PPI) - Often aggressively pushed at every available opportunity by your Card provider. The idea behind this insurance is that your bills are paid if you are unable to work because of illness or an accident. The problem with this insurance is twofold, it's incredibly overpriced and many claims are refused. Plus, you'll often be sold it when you don't even qualify, ie you're self-employed or on a fixed work contract.
  
  
• ID Theft Insurance - Again, in theory not a bad idea but the financial services industry often takes good ideas and then ruins them by grossly overcharging. Sadly they know that most of their customers are uneducated when it comes to financial products. ID theft normally costs around £50 - £100 a year. Invest in a cheap shredder instead and be careful when you're online.
  
  
• High Credit Limits - Card companies often offer far too much credit to people knowing full well that many of them can't be trusted not to overspend. A limit of £1,000 - £2,000 is more than enough for most people but higher limits of £7,500+ seem to be more the norm, even for people earning less than £20,000 a year. If you can't trust yourself with a lot of credit call your provider and ask for them to lower it.
  
  
• Spending when abroad - It's the fees that can make this so expensive. You can be charge around 2.75% for the FX loading fee and then a handling fee of 2.5% if you draw money out from a cash point machine or bank. If you use your card a lot abroad the fees mount up very quickly. But these fees and charges can all be lowered if you get the right Card - See this FAQ for more details.
  
  
• Dynamic Currency Conversion (DCC) - It appears that when we take our Credit Card on holiday we are prey for anyone and everyone. The nasty Dynamic Currency Conversion is a prime example. If you go to a restaurant, occasionally you will be offered the option of paying in sterling. The Restaurant then adds its own handling fee on top which will make the bill even more expensive thant if you'd paid in the local currency. See more on this FAQ.
  
  
• Annual Fees - Most card don't charge any fees (as long as you pay back the full amount every month) but annual management fees are starting to creep in at around £2 a month. Competition is always strong in the Credit Card world so if your card wants to charge you such a fee, consider taking your business to one that doesn't charge.
  
  
• Low Usage Fees - If you haven't used your card for between 6-12 months there is a chance that you could get penalised for around £10 - £30 per year. These are called inactivity fees. Avoid them by using your Card once every few months, even for small purchases.
  
  
• Expensive to withdraw cash - Firstly higher rates of interest are charged for cash withdrawals than traditional spending on a Card. Secondly, interest is charged from the time the money is withdrawn plus a 2%-3% fee will be charged as well. Don't use your credit card to withdraw cash, use a debit card instead.
  
  
• No proper definition of a Cash Withdrawal - If you use your credit card to make an electronic money transfer (like Western Union), fund a pre-paid credit card, or use for online gambling, those are treated as cash and therefore extra fees will be charged plus a higher interest rate. But Gift Vouchers and gift cards are also treated as cash, so watch out.
  
  
• Interest charged on full balance if full balance not paid off - Say you move house and spend £2,000 over a month via your Card on new furnishings. When the bill comes you pay £1,999, ie there's still a negative balance but of just £1. You would think the interest bill on next month's statement would be just a few pennies - Wrong. As you didn't pay the full balance off the interest bill is calculated off the £2,000. Watch this as it's a subtle trick and one which many people are easily caught.
  
  
• Funds must be cleared by the payment due date - Some people forget that when you pay a credit card bill the money won't clear into your account for up to 5 days (usually 3 days). Even if you pay in cash at your local bank it still takes the same amount of time. So always aim to pay your bill a minimum of 1 week before the payment due date.

The opening process is simple and when applying online you normally get an instant decision

• The initial application form is only part of the process
• More paperwork has to be sent for your signature and approval
• You should receive the card with 2 weeks

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Before getting a Credit Card you have to qualify

Qualifying for a credit card gets easier as each year passes.

A good example of this is with Gold Cards. When they were first introduced, about 15 years ago, they really were exclusive, strictly reserved for high earners. But now anyone who earns slightly over the minimum wage (around £26k) will probably qualify.

As long as you have a regular paying job or income, and your credit rating is not toxic (many late payments and/or Defaults/CCJs), you should have no problem being accepted.

Qualifying - What the banks and Credit Card providers look at

1. Your Credit Rating

This is by far the most important factor. Almost everyone in the country has a credit rating which is provided by two credit rating companies, Experian and Equifax.

These firms collate your financial history. They hold details of all your present credit agreements including payment history, amount borrowed and amount owed. This information is used to build a profile which decides whether you qualify for a card and the amount of your credit limit

Necessities for a good credit rating -

• A good history of paying your bills on time
• How much debt you currently have outstanding
• How much credit you're not using (you might have a Credit Card with a £5,000 balance that you're not using up)
• How long you've lived at your present address - long theoretically means more stable
• Whether you're on the Electoral role

A bad credit rating is based on the complete opposite of above, plus whether you've got any defaults or CCJs over the last 6 months. A Default is where you owe money on a credit agreement (loan, mortgage, credit card, even mobile phone contract) and fail to pay after several months. A CCJ, or County Court Judgement. is similar; you owed money, didn't pay and got taken to court.

Factors such as late payments or whether you are on the Electoral role can easily be remedied. But defaults and CCJs stay on your file for 6 years. People with these negative entries on their Credit File will struggle to get decent amounts of credit at affordable interest rates.

Sadly, most people don't realise the power the credit reporting agencies have over our lives. Put simply they are the most powerful financial organisations affecting all of our lives.

• More information - See how to repair a bad credit file

2. Salary & Occupation

Generally the higher your salary the more credit will be available to you, although your type of occupation is also taken into consideration. Job security is always a factor, but salary is obviously far more important.

How to choose the right Credit Card for you?

Not all Credit Cards are the same and of course everyone's spending habits are different as well. So the card that suits one person, might not be the best one for another, and vice versa.

To choose the right Credit Card you have to understand how you're going to be using it, if you do that your question will be answered.

For example -

If you're always going to be paying the monthly amount in full -

• You want a Credit Card that doesn't charge an annual fee (most don't but there is a trend starting where providers are starting to levy charges, usually around £12 - £30)
  
  
• The card with the longest grace period, ie the one that offers you the most time to pay, around 4-5 weeks
  
  
• The interest rate is not applicable, it does not matter if the card charges 29.9% interest as you will not be borrowing any money
  
  
• However you can never know what the future might hold so still try to get the lowest rate in case you can't always settle the bill that month

If you regularly borrow on the card, ie don't or can't always repay the full balance every month

By far the most important factor is the interest rate, referred to as the APR - always go for the lowest

• Even if the card charges a high annual fee still go for the lowest APR, the annual fee will be cheap in comparison to the interest charged every month

For those with bad credit

The good news is there are specialist Cards that are specifically designed for people with bad credit ratings

• The credit limits are low, usually between £200 and £500
• No annual fee usually charged
• But the interest rate is often higher than a standard Credit Cards, often 30% or more
• As an added bonus these cards can help repair your credit rating, assuming you don't have any defaults or CCJs - Read this FAQ for more details
• These cards can also be used to build a credit rating if you don't have one. Some people, often the elderly, might struggle to get credit because they haven't borrowed much money before. These cards solve this problem - See this FAQ for more details

If you want to avoid potential debt altogether

• Forget about Credit Cards and use a Debit Card
• With a Debit Card you can only spend what's in your account (or up to an agreed overdraft limit)
• One downside is that they don't offer the same protection for faulty goods and services as a Credit Card

Why having 2 or more Credit Cards is an advantage

I should think that at least 50% of all Credit Card holders have more than one Card.

Of course, if you cannot control your spending then even a single credit card can cause problems. But if you can control your money having 2 or more Credit Cards is an advantage

They might offer different options and have their own strengths and weaknesses. I have 3 different cards for various reasons:

1. Standard Natwest Card - My general Card for everyday use
   
   
2. Vanquis Card - This has a low limit of just £500 and I use it specifically for online purchases. If there is any fraud, which is unlikely, the fraudsters can't get away with too much. Yes, I know that online fraud is normally always compensated by the credit card company, but still I don't want to have to fight for £2,000+ - Vanquis Card website
   
   
3. Nationwide Credit Card (and debit card) - Used for holidays only as the cards (both of them) have the lowest foreign exchange fees. Use one of these cards on holiday and you get more local currency for your sterling, plus you are not charged to use the hole in the wall.

Tip - If you set up internet access for your Credit card accounts managing them is simple.

Budgeting advantages of having more than 1 Credit Card

There are other uses for having more than one credit card. Some people use one card for general monthly expenses such as food and petrol. Another for entertaining and another for clothes and other non-essential items.

Managing your money in this fashion can have many advantages as your monthly spending is broken down comprehensively. If you're spending too much, you can look back at 6-12 months of past statements and you can easily zero in on where to fix any overspending problems and cut back accordingly.

Summary - As long as you can trust yourself not to overspend and rack up nasty balances, having 2 or more Credit Card is good Personal Finance.

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Beware of 0% Purchase Credit Cards

Give praise where it's due. The Credit Card companies are masters of psychology, especially when it comes to encouraging us to spend, and in turn put us in debt. Debt of course is their main profit centre.

In my mind one of their best tricks they play on us is the 0% purchase Cards. These are simple to understand -

• Works like a traditional Card but for a set period of time, usually 6 - 9 months, all purchases are 0% interest free
  
  
• If your limit is £5,000 you could spend that today on whatever you want and then get charged 0% interest for 9 months
  
  
• But you will still have to pay the at least the minimum balance every month, usually 2%
• And unlike a 0% balance transfer Card there is obviously no initial charge of 3% to pay because you're not transferring a debt - you're hopefully (for the Credit Card company) going to build one!

Where these cards trap so many people is in the 0% free time period. They make it feel like the value of our purchases is not important till sometime in the future. Plus of course it's almost free money it is interest free.

Many people I've spoken to about these Cards report the same thing. They spent far more than they should have done and definitely wouldn't have spend as much if they'd not been granted the 9 months interest free period.

So be wary of these cards. Yes, if used properly they're great but ultimately they're designed to trap us.

Credit Cards - Brand loyalty doesn't exist - Move accounts to get the best deals

Savvy personal finance practitioners realised long ago that being loyal to one bank, brand, or financial company is not the way to go.

This is because banks now tend to operate the opposite way to most businesses. Common sense business practices will mean that you look after and offer more rewards to your existing customers. And clients who've been there the longest, get treated the best.

The banks and finance firms don't work this way. They do it the opposite - caring little about their current customers but falling over backwards ready to offer hot deals and incentives to new customers.

If this is the way the banks choose to play the game, we must use it to our advantage. So if you want the best deals in personal finance, and especially with Credit Cards, then learn to move your money and accounts from one provider to another.

This strategy works beautifully with Credit Cards because the application process is normally so simple -

1. Fill out an online form (10 mins)
2. Get accepted
3. Receive some more forms in the mail (10 mins to fill in)
4. Get your new card

So 20-30 minutes work might result in a saving of several hundred pounds in reduced interest payments, or perhaps some free flights etc.

Summary - Remain flexible and don't be concerned about moving your money or business to get better deals.

There's no doubt that Credit Cards have their faults, mainly their high interest rates if you borrow money, but it's hard to discount their overall usefulness and convenience.

The trick t getting the best out of them is simple -

1. Watch what you spend, and
2. Don't borrow money for long periods of time - if at all

Do that and it will be hard not to be a fan.

This guide has shown you how Credit Cards work, what to look out for, and most importantly their disadvantages. And don't forget - if you want to really understand a financial product, briefly look at its advantages but really concentrate on the disadvantages.

You should now be able to pick the best Card(s) for you, how to run your account responsibly, know what to look out for and understand how to get the best deals - don't be loyal to any brand, move your business to qualify for the best deals and offers.

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See also

• Credit Card FAQs