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Credit Cards - Your Perfect Plastic Partner

 


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According to a report from the Office of Fair Trading, interest is calculated on credit cards in several different ways, depending on the company. This means that when comparing credit cards to find the best one for you, you can't just go by one single factor.

Many people judge a card solely on the APR. There are two things wrong with this: the APR quoted is often ‘typical’ and may be far below the rate you end up paying; and even if you get the quoted APR, there will be other factors that may not be immediately obvious.

Take a look at how the interest in calculated. Some cards have an interest rate which is calculated daily, which is usually better as it means you only pay interest as it accumulates, as opposed to a monthly calculation which assumes you've spent the entire balance in one day. If you tend to use your card more at the end of the month, you could save more on your interest repayments by going for a daily interest rate. Another factor that not many are aware of is when the interest is added. Adding interest at the point of transaction will result in more being owed than if the interest is added on the day your statement is produced.

Still on the subject of interest, be aware that some cards charge interest on the balance owing from the previous month; for example if your balance owing is £200 and you pay off £60 of this in one month, you'll still be charged interest on the remaining £140 the month after even if you don't use your card again. Looks for cards which only charge interest on purchases.

An interest-free period is always a good thing on a credit card, but you have to read the small print very carefully. The 0% interest is usually just for a short fixed period, marketed as an introductory offer, and lasts around 3 to 6 months. For those who play the ‘rate tart’ game - transferring balances from one card to another depending on which has the lowest APR - these interest-free periods are a godsend. But if you're one of the lucky ones who gets a longer interest-free card, be careful to make every payment. It's not unheard of for a card company to instantly charge a high APR on the basis of a single missing payment.

It goes without saying that you should pay off the minimum payment each month, but it's actually better to pay off more than this each month; not only will you pay off your balances quicker but you'll also end up paying less interest. The minimum payment is usually 5% of the balance or £5, whichever is greater. If you have a card where the interest is calculated daily, paying off as much of your balance as you can each month could save you a substantial amount.

It's always best to do a comparison of credit cards when looking to make an application. To do so could save you a tidy sum later on. 0% credit cards are ideal if you have a balance to transfer. Provided you do your research and don't rush into things, you and your credit card can live happily ever after.

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