Credit Cards

Credit Cards and What You Need to Know

For most of us, life would be nearly impossible without the use of a modern credit card. These diminutive pieces of plastic are able to purchase nearly any good or service imaginable. From heading off to the grocery store on a Sunday evening to obtaining the car of your dreams, the concept of the credit card is certainly engrained within our culture. There are a nearly countless number of providers and as you would expect, each tends to offer its own set of unique terms and conditions. Let's take a quick look at how a basic credit card functions before examining some of the variables to consider as well as the top credit card companies within the United Kingdom today.

The Principle of a Credit Card

Many consumers purchase items on credit. This allows them to avoid paying with cash. Depending upon the credit history of the individual, anywhere between a few hundred pounds and tens of thousands of pounds may be available at any given time. The balance of a credit card needs to be settled; normally on a monthly basis. Once these funds are once again paid to the provider, the credit limit is “reset”. This is commonly referred to as revolving credit.

Taking Interest into Account

It can be argued that the most important concept to appreciate is the interest rate. This rate will vary and consumers need to realise how interest will affect one's balance. Let's imagine that you have a credit card with a limit of £10,000 pounds. The interest charged is 0.5%. This means that if you “max out” your card within a month, you will be required to pay an additional £500 pounds to settle the balance. So, higher interest rates (known as the APR) can dramatically affect your repayments. This is why comparing different rates is very important to find the best deal.

Special Types of Credit Cards

There is truly no such concept as the so-called “universal” credit card. Indeed, countless types exist for very unique needs. One example can be seen in a student credit card. The limits of these cards tends to be lower while the interest rates offered are highly competitive. Such cards are intended to teach young people the importance of credit while simultaneously establishing a good credit history (important when applying for future loans). Credit cards for bad credit are associated with higher interest rates (due to the increased risks) and yet, they can be great ways to improve one's credit score over time. Some other subcategories of these cards include business-related credit cards, cards intended for travel and programmes which provide a limited supply of one-time funds.

The Top Credit Card Providers in the United Kingdom

While each firm will naturally provide its own discrete offers, there are some which have consistently scored high within the UK marketplace. Three examples here are:

  • Tesco Bank
  • MBNA
  • Virgin Money

Not only does Tesco Bank offer numerous nationwide cash points, but advantages such as no transfer charges for 24 months and a variable APR of 18.9% will provide customers with many money-saving opportunities. There is also no charge for any purchases during the first month of use.

MBNA charges an APR equal to Tesco Bank and yet, there are no balance transfer charges for up to 40 months. However, there is currently a variable interest rate on all purchases (not present within the Tesco Bank plan).

Finally, Virgin Money will charge no interest payments for no less than three months after the card is activated. We should still note that a slightly higher APR rate of 19.9% will normally be taken into account.