Credit
cards can prove to be a flexible and convenient
method to obtain credit. This section
will aim to clarify the different types
of credit cards, and list some of the
pitfalls to be aware of.
A credit card basically provides a sum
of money (a credit limit) each month for
you to spend in outlets where your type
of credit card is accepted. At the end
of the month your credit card company
will send you a bill, with an itemised
list of all expenditure made on your credit
card since the previous bill. You are
usually given a month to meet a specified
minimum payment on your bill; should you
only repay the minimum payment at the
end of the month, interest will begin
to accrue on the remainder of your debt
(interest payments can usually be avoided
by repaying your bill in full each month).
The interest rate that is payable can
be quite high, but it varies between credit
card companies, so it is important to
shop around to find the best deal.
Many
credit card companies feature an incentive
of low introductory interest rates for
a limited period e.g. 6 months. This can
be used to a borrower’s advantage
where obtaining cheap loans are concerned,
as he or she can take advantage of an
introductory offer, and following expiry
of the introductory period, move to a
different credit card company offering
a similar introductory offer. This can
result in quite significant interest savings
for a heavy credit card user.
There
are several different types of credit
card, including standard, platinum or
gold, charity or affinity and loyalty
cards. Standard cards are the most common,
with Visa and MasterCard being two of
the most common companies offering credit.
Platinum or gold cards are generally for
people of a higher income, and have other
benefits associated with them. Charity
or affinity cards donate a small percentage
of the spent balance to a charity associated
with the credit company, while loyalty
cards offer incentives such as cash bonuses,
air miles etc.
Credit
cards can be expensive and hard to control.
It is therefore advisable to keep receipts
of any purchases made; mistakes are possible
and receipts should be cross checked with
the relevant monthly statement. If any
discrepancies are discovered, they should
immediately be reported to the credit
card company; they will be more sympathetic
to the cause the earlier that they are
approached by the borrower. Most credit
cards are also issued with a personal
identification number (PIN) which allows
cash to be withdrawn from the credit account
at a regular high street cash machine.
The owner of the card should always keep
the credit card details and PIN separate
from each other.
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