Credit cards are fast becoming the norm when it comes to purchasing goods or services and many banks and financial institutions offer benefits to people who use their credit cards for every day purchases in the form of cash-back – which in turn make them even more appealing to have.
However, without the proper usage or understanding you could enter a cycle of credit card debt which becomes harder to break out of the longer it goes on.
It is important that any type of loan or borrowing should be carefully considered and all aspects thoroughly thought through – here are six things you may not know about your credit card.
1. Unexpected increases
Changes in interest rates attached to your credit card can really impact on monthly repayments. As such, it is important to understand how these changes work in order to avoid being caught out. Firstly, some particularly attractive rates are actually only available for an introductory period and are likely to rise at the end of the agreed period so it is important that you are prepared for a potentially sharp rise in monthly repayments. In addition to this, credit providers can alter interest rates as long as there has been a warning of at least 30 days. Therefore opening all post and emails connected to your account is vital if you are to avoid any unexpected surprises.
2. Credit rating
Your credit rating is a strong indicator of your financial well-being. Looking after your credit card repayments is a must for a positive rating, but mishandling your borrowings can have a lasting impact. In addition to this, constantly switching your card balance or repeatedly applying for credit will cause alarm bells to ring for prospective lenders. It can make it look as if you are irresponsible with money and therefore it should be avoided.
The chief misunderstanding here comes as a result of confusion between typical APRs and personal APRs. A typical APR is what credit card providers will use to both attract customers and to allow easy comparisons between their card and the cards of rival companies, but it is a generic number and not always connected to what you will actually pay. Therefore it is vital to look carefully at the personal APR agreed on any credit card in order to be prepared for your repayments – this will also help you to better budget and manage your cash flow so you have a better chance of clearing your credit card debt at the end of each month.
4. Travelling abroad
There are two hidden charges to be aware of when using your credit card at ATMs overseas. Firstly, when you withdraw cash either at home or abroad, you can pay over the odds in interest. Secondly, doing so abroad can incur something that credit card companies can refer to as a loading fee, an administration charge or an exchange rate conversion fee. It’s often not apparent until the bill comes through, but credit providers charge a fee for moving your money from one currency into another.
5. Online booking fees
Rules and regulations surrounding online booking fees were reviewed and tightened up in 2013, but buyers still need to be aware of how these charges are calculated. Until last year, businesses were able to automatically attach sometimes extortionate fees to tickets bought online, leading to credit card users paying over the odds. Although the fees are no longer as secretive, credit card users must still be aware of the potential for extra charges when buying online.
The rationale behind Payment Protection Insurance was sound. Intended as a safety net in case of illness, injury or redundancy, PPI was designed to help borrowers meet their agreed repayments in times of financial difficulty. However, controversy arose when it was revealed that many people were completely unaware that paying for PPI was a large part of their monthly charges. As such, a number of consumers have regained the money charged and the rules surrounding PPI have been completely revised.