A guide to credit card charges

Interest

All credit cards will quote an interest rate that you’ll pay if you borrow money. This will usually be quoted both as a daily rate and as an APR, which is the annual cost of borrowing on the card. The important thing to remember is that if you pay off your balance in full, by the date listed on your statement, you will usually not be charged any interest at all. If you don’t clear all your balance, you will be charged interest at the daily rate on the balance, usually from the date you originally made the transaction. The interest charge will be added to what you owe and the following month you will pay interest on your interest.

It’s not uncommon for a credit card to quote a number of interest rates, such as one for purchases and one for cash advances (if you take cash out at an ATM for example). Cash advances don’t usually offer an interest-free period. And, some cards may offer yet another different interest rate for any balances you transfer to them from other cards, overdrafts or store cards.

Late payment

If you do make your credit card repayment, but make it later than you should, you can expect to potentially be landed with all the same penalties and charges you would get if you missed it altogether. If you know being organised is something you’re not great at, and you’re regularly missing payments, make things easier for yourself by setting up a standing order or Direct Debit for at least the minimum repayment (although paying more than this is best to save money on interest and clear your balance sooner). That way, you have the peace of mind that, as long as you have the money in your account to cover the amount, you’ll never miss a repayment.

Exceeded Limit

When you received your credit card, it came with a spending limit set by your lender. It’s important that you don’t exceed this limit when you’re out shopping or when you pay for services, as it could result in a fee.

Another reason not to exceed your agreed credit limit is that this can show up on your credit report. If it happens too many times, potential lenders may worry that you’re unable to cope with the credit you have and reject any applications your make for more.

If going over your limit was a genuine mistake, and you only exceeded it by a small amount, like a few pounds, get in touch with your lender as soon as possible. Once you have explained the situation, they may decide not to impose a penalty.

Balance transfer fee

Not everyone chooses to take out a credit card to spend on, some use their plastic to make managing their existing credit agreements easier. A balance transfer card is designed for just this – you can transfer the balances of any separate unsecured credit cards, store cards or overdrafts you have on to this card, so that you’re paying just one bill a month rather than several. Many balance transfer cards come with low interest rates – even as low as 0% – for an introductory period, so doing this can also reduce the amount of interest you’re paying.

However, keep in mind that these cards usually charge a transfer fee for shifting a balance from one line of credit to another. Find out what this is before you apply and make sure you factor it in when you’re working out how affordable your new card will be.

Cash withdrawal

If there’s one thing credit cards aren’t ideal for, it’s withdrawing cash from an ATM, because there can be a charge or, alternatively, you may be charged interest from the date of the withdrawal, rather than when your bill arrives. This charge can be quite high, so, where possible, it’s best to only use a cash or debit card to withdraw money.

You should also consider your credit rating before withdrawing cash on a credit card. The transaction will show up on your credit report and it’s one of the things that can make many lenders nervous, as it could look as though you’re struggling for money and so having to borrow, even to take out small sums of cash.

Use abroad

Credit cards have plenty of advantages when it comes to travelling; they are more practical to carry about than lots of cash and they are also more likely to be protected if they’re lost or stolen. Whereas if your cash went missing you would probably be left out of pocket.

In return for this, there’s usually a fee for using your card abroad. Make sure you check what this is before you travel, so you don’t get an unwelcome surprise when you receive your bill back home. Typically, you will be charged a fee on top of the exchange rate, so it may be worth looking for a credit card that has been specifically designed for use abroad, and doesn’t come with this admin fee.

Always let your credit card provider know before you travel abroad. If you don’t they may decide that the activity on your account during the time you’re away is suspicious and, possibly, block the card.