Focus on credit cards There seems to be a small plastic card for everything these days: college ID, driving licence, bank details, supermarket loyalty schemes, you name it! Perhaps one of the most useful you might carry is a credit card (or maybe you have the app on your phone) to make buying easier. But understanding how they work is important for you to stay in control of your spending. Here’s our quick guide to the essentials. What’s the difference between a credit card and a debit card? They look almost identical, they have numbers and chips, and you can use either for contactless payments. The most important difference is that a debit card will have been issued by your bank and allows you to instantly access only the money you have in your bank account. Payments by debit card are taken immediately from your account. However, a credit card allows you to borrow money to buy things, that you then must pay back and can incur interest. How do you get a credit card? Because it’s like a loan-facility, applying for a credit card is usually a bit more complicated than opening a bank account. You will need to fill in a questionnaire about things like your employment status, where you live and what your monthly rent or mortgage payments are to help the credit card company decide if you are a ‘good’ risk. You will also need to provide
14
documents to prove your ID and address such as passport or current bills, and the company will check to see if you have any credit history. They will use this information to check who you are and to set your credit limit. Card approval processes are getting quicker but it can take a week or so to know if your application for a card has been approved. Are there different types of credit card? Credit cards generally fall into two categories: a standard card or a premium card. • Standard cards simply offer to lend you money to buy things. As an incentive, many cards do now offer some rewards, such as a small percentage cash back on what you’ve spent or travel points. • Premium cards offer the same loan facility but usually offer much more too, for which you
Make The Future Yours! Issue 3
will pay an annual fee just to have the card. These other offers might include special event access or exclusive airport lounge use. If you are going to make use of these perks, it’s worth checking them to see if the annual fee is worth paying. How do the interest rates work? Normally if you borrow money you are charged ‘interest’, depending on how much you borrow and for how long. Interest charges mean that you will pay back more than you borrowed, effectively the charge for having that loan. All credit cards must be clear on what their interest charges are, and you will see these displayed as something like “20% APR – annual percentage rate”. This tells you how much interest you will owe on any money that you don’t pay back when it’s due.
