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Balance Transfer

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  By Holly Thomas,  Author
Jan 19, 2022

Your Complete Guide To Credit Cards

There is a whole host of credit cards on the market. And, if used wisely, they can be a great way of spreading the cost of big-ticket purchases, earning rewards or boosting your credit score if you’ve had debt problems in the past.

Deciding on which card or cards to apply for, depends what you want to achieve. Here’s more on using credit cards to your advantage.

Managing debt

Balance transfer cards help get debt under control. They offer the chance to switch debt built up on another card – where typically you will pay annual interest (APR) at a rate just shy of 20% – to a new one which offers zero interest for a set period.

Paying no interest at all means that every penny you repay goes towards clearing the debt, rather than going into the provider’s coffers.

Some cards offer an interest-free window of more than two years’ although deals vary. However, the longest interest-free deal might not be the most cost-effective, as these interest-free cards usually charge a fee each time you switch. But not all cards apply the so-called “balance transfer fee” which can be anything up to 3%.

If you had a debt of £4,000 it could cost you as much as £120 to transfer the balance if the card was to charge the full 3%. With a bit of detective work on a comparison site you could find a card with a lower fee, or even zero fees.

Balance transfer cards with lower fees tend to offer shorter periods at 0%. But, so long as you can afford the monthly payments, it would save money to go for a card with a shorter term. You may even end up paying the debt off faster.

If you don’t clear the balance in time, you may be able to transfer the debt again to avoid interest charges.

Making a big purchase

Purchase cards offer an interest-free period for spending on the card. If a big expenditure is looming on the horizon, these cards could be the answer to spreading the cost. At the moment there are purchase cards offering a 0% period in the region of two years – but deals change so always compare your options.

It’s crucial you make sure you are able to repay the full amount before any interest-free period offer is up. After this, the rate reverts to APRs as high as 37.7%, depending on the card you take out.

If you don’t manage to wipe the debt by the end of the fixed period, you can look into taking out a balance transfer card to maintain the 0% interest rate.

Getting something back

Cashback cards pay you to spend. A certain percentage of your monthly balance is paid back to you annually – by crediting the card.

Earning money as you shop is a great way of getting what is effectively a discount on your shopping and making something back on one-off large purchases, too. Always pay back the full balance or the interest charges will negate any cashback gains.

Reward cards

Many cards have tie-ups with reward schemes. You earn a certain number of points with every payment which you can spend elsewhere. M&S, Sainsbury’s, John Lewis/Waitrose, Asda and Tesco Bank credit cards all offer rewards points when you shop with them.

But it’s a good idea to choose one card and stick to it, rather than having a purse or wallet full. Like cashback cards, reward cards should only be used if you can clear the full balance each month as interest charges will far outweigh the value of any rewards you earn.

Credit score repair cards

If you have had trouble with debt in the past, you’re likely to have a blemished credit record. This means that getting credit for anything from a mobile phone to a mortgage could prove difficult.

There are cards available that are designed to help such borrowers. from the likes of specialist lenders Aqua and Vanquis as well as bigger brands such as Tesco and Barclaycard. It figures that these cards offer very small credit limits – in the hundreds, rather than thousands – but are offered to those that are not eligible for mainstream cards.

By spending and making at least the minimum repayment each month, it’s possible to build up a record that shows you can be trusted to repay so lenders are more likely to give you credit in future.

If you do not pay off your balance each month, your score is unlikely to improve – and in this case, you’ll be charged an especially high rate of interest on the debt.

Overseas spending

When you buy goods and services abroad with a standard credit card, there’s usually a foreign usage charge applied which could be as much as 3%. There’s also a withdrawal fee if you take cash out with your card.

If you are a regular traveller, it’s worth considering a credit card that offers a good deal on foreign spending. It can save you hundreds of pounds on a family holiday.

The cards differ slightly in what they offer so it’s important to read the terms and conditions. For example, some may only offer fee-free spending in Europe so if you’re planning a trip for business or pleasure further afield, make sure you factor that into your search.

5 ways to be credit card-smart

  1. Never withdraw cash from your credit card – doing so attracts hefty fees and interest that will apply immediately
     
  2. Set up a direct debit for repayments – the benefits of 0% interest, rewards, cashback and fee-free foreign spending are all wiped out if you fail to make at least the minimum repayments as interest and charges are expensive. Setting up a monthly direct debit is the easiest way to eliminate the risk
     
  3. Keep your part of the deal – if you miss a payment completely on a card with a 0% interest period, not only will this affect your credit score, you may lose the promotional offer
     
  4. Use an eligibility checker – this assesses the chances of you being accepted for a card before applying which, in turn, protects your credit file. Bear in mind the most competitive cards will only be offered to applicants with an excellent credit record
     
  5. Don’t rely on them – if overspending is a problem then it’s best to steer clear of using credit cards at all.

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How does the ES Money Eligibility Checker work?

We ask you for some basic information that enables us to find your credit file, which is held by credit reference agencies. Our checker looks at your credit history and works out whether you match what the credit card providers on our panel are looking for in new customers. That means we can give you an idea of how likely it is that your application for a credit card will be successful. The process takes just moments.

The ES Money Eligibility Checker and the comparison service we offer is provided by Runpath Regulated Services Limited on a non-advised basis. ES Money has selected Runpath Regulated Services Limited to compare a wide range of credit cards in a way designed to be the most helpful to the widest variety of readers.

Why should I use the Eligibility Checker?

The main purpose is to protect your credit file and your credit score. If you make a lot of applications for credit cards, it can be taken as a sign that you’re struggling to find a credit card provider who wants you as a customer. That can damage your score and make the situation worse. But if you can see which credit cards you’re likely to get via the Eligibility Checker, which doesn’t damage your file, then you can target your applications where they have the best chance of success.

Will you tell me which credit card I should apply for?

No – we don’t provide advice. We offer information to help you choose which credit card might be right for your needs by providing a table of credit cards which you can assess before you decide. This comparison service is provided by Runpath Regulated Services Limited on a non-advised basis.

Find out more from our credit card guides

Transfer your balance to an interest-free card

Find Out More

Reward credit cards explained

Find Out More

Interest-free purchase credit cards

Find Out More

How to pick the right travel credit card

Find Out More

Money transfer credit cards explained

Find Out More

What are credit builder credit cards?

Find Out More

How do credit cards work?

Credit cards enable you to borrow to spend money up to a certain limit that’s set by the credit card provider. The amount you borrow is then repaid to the provider in monthly instalments. If you pay off your balance in full each month, there will be no interest to pay. But if you are unable to clear your outstanding balance, interest will be charged you owe.

Note that there will be a minimum amount to repay each month. If you do not pay anything or pay less than the minimum amount, you will be charged a fee, which will be added to your balance.
If you consistently miss payments, the card is likely to be cancelled, although you will still owe money to the provider.

Your monthly statement will detail how much you owe, when it needs to be paid, and how much interest you will be charged (if applicable).

Which credit card is best for me?

That depends. There are several different types of credit cards and the one that best suits you will depend on what you want to use it for.

If you’ve got a big-ticket purchase in mind, a 0% purchase credit card will help you spread the cost interest-free over a number of months. Paying off your balance within that timeframe is important as interest will be charged once the 0% deal ends.

Alternatively, transferring existing credit card or store card debt to a 0% balance transfer credit card will enable you to avoid paying interest on that debt for several months. As well as helping you to save money, you’ll also clear your debt more quickly. Balance transfer credit cards usually charge a transfer fee of around 2% to 3% of the amount transferred so don’t forget to factor this in.

Low APR credit cards can often be used for both purchases and balance transfers but rather than charging no interest for a set time, they charge a low rate of interest for life. This means there is no deadline by which you need to have repaid your debt.

Alternatively, money transfer credit cards enable you to shift money from your credit card straight into your bank account. If you choose one with a 0% offer, you won’t pay any interest for a set time. Just watch out for the transfer fee which is typically around 3% to 4%.

Other credit card options include reward credit cards, allowing you to earn cashback, loyalty points or airmiles as you spend, credit cards designed for overseas spending, and credit builder cards aimed at helping you to rebuild your credit score.

How long does it take to get a credit card?

If you apply online, many card providers offer instant approval, while others take around five to 10 days to make a decision. Once you’ve been approved, your card should arrive within 10 working days.

How do I activate my credit card?

You will usually need to call an automated number – this should be on your card or included in the information pack sent with your card. Once your card is activated and you’ve received your PIN you’ll be ready to go.

How much can I borrow on a credit card?

Your card provider will set a credit limit which is the amount you’ll be able to borrow. This is usually a few hundred or a few thousand pounds, but it will depend on factors such as your credit score, how much available income you have, and whether you have other credit commitments such as a mortgage, loan or overdraft.

Can I increase my credit limit?

It’s best to wait a few months before asking your card provider for a credit limit increase. This will give your provider time to assess how reliable you are as a borrower. Your request to increase your limit is more likely to be granted if you’ve kept up with your monthly repayments and haven’t exceeded your existing credit limit.

Can I get a joint credit card?

Joint credit cards are not available, but you can add other cardholders to your account. The additional cardholders will have their own card, but you’ll share the single credit limit on the account. The primary cardholder will be responsible for paying off the debt.

What is the ‘APR’?

The APR – or annual percentage rate – is the official rate used to show the total cost of your borrowing for a year. It’s used to compare credit cards and loans and takes into account both the rate of interest and any additional fees and charges.

Bear in mind that if the APR is representative, it only has to be offered to 51% of successful applicants. The remaining 49% may be offered a higher rate.

What is the minimum monthly repayment?

This is the minimum amount you will be asked to repay each month. Typically, the minimum monthly repayment is around 1% of your total balance, plus that month’s interest, or a fixed amount of £5, whichever is greater.

If you only pay the minimum each month, clearing your debt will take a long time and you’ll end up paying a lot more than you borrowed. So always pay off more than the minimum if you can.

What happens if I can’t pay my credit card bill?

If you miss or are late with a payment, you’ll be charged a fee of around £12. The late/missed payment will also be noted on your credit report which could affect your ability to get credit in the future. Any 0% promotional offer you’ve taken advantage of is also likely to be withdrawn, meaning you’ll start paying interest.

Speak to your card provider immediately if you have concerns about keeping up with your repayments. They should work with you to come up with a repayment plan to help you clear your debt.

Can I change my payment due date?

Most lenders will allow you to change your payment due date if you need to – for example, if you want it to fall just after your salary has been paid. However, you may only be able to make a payment change twice year. Speak to your lender to discuss your options.

Does a credit card provide purchase protection?

Yes – any purchases costing between £100 and £30,000 will be protected under Section 75 of the Consumer Credit Act. This means if your goods don’t arrive, they are faulty or not as described, or your supplier goes out of business, your credit card provider is jointly liable with the supplier and you should get your money back.

Should I withdraw cash on my credit card?

It’s best not to – unless it’s an emergency. That’s because you’ll be charged both a fee for withdrawing the money (around 2.5% to 3% of the amount withdrawn) and a high rate of interest (often around 34.9% APR). This interest will be charged from the date of the transaction, even if you pay off your balance in full that month, making it an expensive way to borrow.

Can I use my credit card abroad?

You can, but it’s best to choose one designed for overseas use to avoid paying expensive fees. Standard credit cards often charge foreign transaction fees of around 3% for every purchase, while cash withdrawals will be charged extra – plus interest.

Can I get a credit card with bad credit?

The most competitive credit cards are reserved for those with good credit scores. However, credit builder credit cards are designed specifically for those who have no credit history or a low score. Providing you make your repayments on time each month, these cards can help you improve your credit score over time, which will help you to access more competitively priced options in the future.

Note that most credit builder cards have low credit limits and high rates of interest so it’s important to clear your balance each month.

What should I do if I lose my credit card?

You’ll need to call your card provider as soon as possible to report your card lost or stolen. The provider will deactivate your card and send a replacement.

If you believe you’ve simply misplaced your card, your provider may allow you to ‘freeze’ your card online. You’ll then be able to ‘unfreeze’ it if you find it. Some banks provide apps that enable you to freeze and unfreeze your card yourself.

How can I cancel my credit card?

If you no longer wish to use your credit card, you’ll need to pay off the balance in full or transfer it to another credit card. You’ll then need to phone your card provider or write a letter to inform them you want to cancel the card.

FAQS

Credit Card APRs And Why They Are So Important

Guide To Low Rate Credit Cards

How To Improve Your Credit Score

Cash Advance Credit Cards In A Nutshell

Guide To Student Credit Cards

Can You Get A Guaranteed Credit Card?

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