What are they?
A credit card is a type of borrowing where you purchase items immediately, and agree to pay the bank or lender back at a later date.
When you make purchases with a credit card you have to repay ‘at least’ the a minimum payment – which is usually a percentage of what you owe – each month. You can also repay in full, if you have the money to do so.
You’ll have a credit limit, which means you can spend as much as you need on the card up to that amount.
Some credit cards offer services such as ‘balance transfers’ (moving the balance from one credit card to another) and 0% purchase credit cards, offer interest-free periods.
What are they used for?
Credit cards are mostly used for larger one off or regular purchases, such as luxury items, holidays, white goods like washing machines. Many people use them for grocery shopping, especially if you are doing an expensive shop and you don’t get paid for a few more days.
Credit cards provide the owner with much needed breathing space, which is very helpful when you’re short of cash that month, due to foreseen circumstances, such as unexpected vet bills or the boiler dies.
They also offer you some additional legal and buying protection, compared with using your normal current account card.
Be aware of
If you don’t repay the amount you owe in full each month, you’ll typically be charged interest which can keep piling up. Ideally you should aim to pay back as much as possible to avoid the debt becoming worse.
Some credit cards offer 0% APR across lots of borrowing or deft shifting, which is excellent. It means, apart from transfer fees etc, if you borrow £1000 from your credit card company, and pay back the £1000 within 6-18mth (whatever the interest free term is), you pay back the £1000 and nothing else! Buy you must have a plan to pay back that money and stick to it, to avoid the APR charges.
For up-to-date advice on which credit cards Quidearner recommends see here.