A credit card allows you to buy things now and pay for them later – either in full to avoid paying interest or in monthly instalments. You can spend up to a certain amount on the credit card – known as your credit limit.
You’ll get a monthly statement from your credit card provider, which lists your transactions. If you’ve spent money on the card, you’ll have a minimum amount you need to pay towards your balance each month to avoid credit card charges.
How Does Credit Card Interest Work?
If you don’t pay off your credit card balance in full after receiving your statement each month, you’ll be charged interest. The interest will be calculated as a percentage of the amount you owe.
Some cards, such as balance transfer credit cards, offer an interest-free period when you first get the card. However, once that period ends, you’ll start to be charged interest if you don’t pay the full balance every month.
There are some transactions, such as cash withdrawals, which you may still be charged interest on, even if you repay your balance in full each month. Always check your credit card terms and conditions to see what types of transactions you’ll be charged interest on.
Can You Transfer Money from a Credit Card?
If you need emergency funds, it’s possible to transfer money from your credit card to your bank account. But remember – using a credit card to raise extra funds means taking on more debt, so you should think carefully before doing this. You also need to be aware of transfer fees.
Can You Withdraw Cash from a Credit Card?
It is possible to take out money using your credit card – known as a cash advance. However, there’s typically a fee for withdrawing cash. While a cash advance may look appealing in financial emergencies, the additional fees and high-interest rates can make it more expensive in the long run.
Advantages of Using a Credit Card
There are several advantages to having a credit card, as long as you use it responsibly.
- Spread the cost of a large or expensive purchase: Want to book a holiday or buy a new sofa? You can make a purchase and then repay the balance over the course of several months. This is where a card with an interest-free purchase period can come in particularly handy – if you can pay off the balance during that period, you won’t pay any interest at all.
- Get purchase protection: Under Section 75 of the Consumer Credit Act, you may be protected if you buy anything that costs between £100 and £30,000. This means, if something goes wrong (such as faulty goods, or if the company you’ve purchased from closes down), you could get a refund.
- Build your credit rating: Having no credit history means that banks are unable to assess how well you can manage debt. A credit card can help you build up your credit score and create a good record of paying off debt – as long as you make at least the minimum payment each month and stay within your credit limit. When it comes to applying for larger loans like a mortgage, this can help prove you’re responsible.
- Prepare for emergencies: Although it’s a good idea to build up an emergency fund, a credit card can help cover repairs or unexpected expenses should something happen.
Should You Get a Credit Card?
Before you apply for a credit card, there are some key things to think about.
- How you’ll handle temptation: With a credit card, you may be able to spend more than you’re comfortable with. Before taking one out, consider how you’ll handle any temptation and whether it’s the right option for you. If you decide it is, then you could set yourself some rules for spending. These can be simple things such as to only spend within a certain amount each month, or to only use it for emergencies or big purchases.
- Your spending habits: If you’re planning to pay off your balance in full every month, the interest rate may be less of a concern to you. But if you’re going to carry a balance, it may be worth looking for a card with the lowest interest rate available. Keep in mind that you don’t want to be setting yourself up with long-term debt – so carrying a debt indefinitely is not what a credit card should be used for.
Credit Card Fees
Some credit cards charge an annual fee, and charge for certain types of transactions, such as cash withdrawals, making a balance transfer or using your credit card overseas. You could also be charged a fee if you go over your credit limit, or make a late payment. This could harm your chances of getting credit in the future.
Understanding APR (Annual Percentage Rate)
APR is the way lenders describe the cost of borrowing money over a year – taking into account the purchase interest rate and fees associated with having the credit card, such as an annual fee.
When comparing credit cards, the representative APR can give you an idea of how much a credit card could potentially cost you.
Credit Card Eligibility
You can apply for an HSBC credit card if you:
- Are over 18
- Are a resident of the UK
- Have an annual UK taxable income or pension, before tax, of £6,800 or more
Some credit cards may have additional eligibility requirements. For example, HSBC’s Premier Credit Cards are only available to HSBC Premier customers.
Conclusion:
A credit card can offer many benefits when used responsibly, such as providing an easy way to spread out large purchases and helping you build your credit rating. However, it’s important to keep track of your spending habits and make sure you understand any associated fees or interest rates. Always read the terms and conditions before applying for a credit card, and use it wisely to avoid debt accumulation.
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