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Credit Card Applications » News » Other » SAFETY IN NUMBERS – CREDIT CARDS FOR CAREFUL USERS


The content is accurate at the time of publication and is subject to change.

At the end of 2010, there were over 55 million credit cards in circulation, 6.6 million charge cards, and 31.2 million people had at least one credit card. As the use of credit cards across the UK has continued to rise, we’re now being offered card deals online, or via direct mail and advertising. Every card company tries to offer something extra, and all this advertising can play to our weaknesses. It’s easy to feel flattered by being targeted by a finance company or bank, offering us lots of credit. Perhaps we’re keen to prove or improve our credit history, or maybe we just need of a bit of extra credit to help us through a slow patch, or finance a major purchase.

Credit cards are directly linked to your credit rating

Most companies issuing credit cards, base their decision whether or not to issue a card on your credit rating. This is the information which will tell the lender how reliable you are in finance terms, and is built up over time by your consistent good management of debt, keeping your existing borrowing under control, and successfully managing other credit cards and loans either currently or in the past.

Prepaid credit cards are ideal for those who have a poor credit rating. This may be because you’re young and haven’t had a chance to build up a record of good credit, or perhaps you have made mistakes or mismanaged your debt in the past. However, others can benefit from the flexibility and convenience of a pre-paid card too. Young people may need money for travelling, but want the security of only having a limited amount to spend, in case temptation gets the better of them, or the card is lost or stolen. Other users may just be looking for a way to manage purchases without carrying cash.

A pre-paid credit card be used to make purchases online, or anywhere where Visa and Mastercard are accepted. You start by depositing funds into an account, and use the money by handing over the card. Plus points of the pre-paid card are:

  • You don’t need a credit record to apply for one
  • You can’t accumulate debt by accident
  • You won’t be able to spend more than you planned, however tempted you may be
  • You can manage purchases without carrying cash
  • The amount available is limited by the amount you put in. So if your card is lost or stolen, that’s the most you can lose.
  • Some cards offer rewards for signing up, especially if you can deposit a reasonable amount into your account.

However, there are some things you need to be aware of

  • Unlike a credit card, the prepaid card does not allow you any credit. When the money’s gone, it’s gone.
  • When you deposit the money, it doesn’t accumulate interest, so it’s not a good way to invest.
  • Most cards will apply application fees, annual fees, and may also charge for other functions, such as balance transfers.
  • Your record of use of a pre-paid card does not count as credit, so it won’t help you start to build up a good credit rating for future applications.

So if you’re in the market for a pre-paid credit card, the best way to compare the offers open to you is online. Make sure you read all the small print, and then choose the card which will best suit your needs.

Credit cards with low interest rates

If however, you’d like to have a traditional credit card, but you’re concerned about the rates of interest you will pay, you can compare cards using the APR figures they advertise. Credit cards with low APR rates are often the most desirable, and you may even be able to get a card with a 0% interest rate for a promotional period. However, you should remember that the best deals are invariably for those who have a really good credit rating. Card companies and banks offset the higher risks of those with poorer credit by charging higher rates. But there are lots of deals between the two, so it’s worth having a really good look.

Things to look for if you’re thinking of a low interest credit card include:

Is the low interest rate covering for other higher charges, such as annual and balance transfer fees? If you are likely to want to transfer a balance later, this could be significant.

How long is the low-interest or interest-free period for? Is it long enough for you to pay off the balance? If not, be careful to take account of the new interest rate once the promotional period ends.

Beware of tempting rewards. Airmiles, cashback, fuel and shopping rewards and milestone payments can be a real bonus, but you need to relate them to your lifestyle spending habits. Don’t rack up card use just to get benefits, or you’ll pay far more than you receive.

Whatever type of card you’re looking for, be sure you’ve compared as many options as possible. Large US banks offer a very wide range of options, and you need to compare all the criteria, as well as selecting a credit card which may even support your favourite charity or organisation.

Comparing cards across the board can be time-consuming as there are so many criteria to consider. Cards offering a good deal in one area often offset what they’re offering you by being less advantageous in other areas. The key is to find the best card for you. One of the most comprehensive card issuers is chase credit card, which has a range of cards, all clearly differentiated in terms of the advantages they offer.

Top 5 tips for making financial sense

  1. Check your credit rating. You can do this online, and if you access your record it won’t affect your rating. However if the card issuer checks it, and turns you down, it will have an adverse effect. Broadly speaking, the best deals are reserved for those with the best credit rating. So don’t risk making a poor record worse by applying for cards you aren’t likely to get.
  2. Consider why you want the card. Is it for managing small to medium amounts over a short period? If so, a card such as the Chase Freedom card, which offers bonus points for spending specific amounts may be the one for you. However if you are planning to transfer or accrue larger balances, you need to think about the cards with the lowest APR, such as the Chase Slate card.
  3. Think about your lifestyle. That’s the fun bit. Many credit cards such as the Chase Sapphire card offer rewards to their customers, which they can redeem against travel, accommodation and shopping. But be careful. The rewards have to be worth the commitment you make to the card. If you can really use the benefits, they can save you money. If not, you’ll be letting the card dictate your life, and that’s not good.
  4. Do the math. Add up the amount of interest you will pay overtime and add it to the cost of your shopping. Then add on the costs of holding the card you’re considering. Don’t forget annual and transfer fees. Don’t be swayed by the sexy designs and clever card names. You may be surprised by the card which comes out ahead.
  5. Apply online. Keep your card safe, be careful with the details, especially when ou hand the card over, and when you shop online. Always remember when you use it, it represents your money. And stick to your payment plans. If you follow our top tips, you’ll have the right card for you, and you can sit back and enjoy the benefits.
Disclaimer: This editorial content is not provided or commissioned by the credit card issuer(s). Opinions expressed here are the author's alone, not those of the credit card issuer(s), and have not been reviewed, approved or otherwise endorsed by the credit card issuer(s). Reasonable efforts are made to present accurate information, however all information is presented without warranty. Consult a card's issuing bank for the terms & conditions.
All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.
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