Credit Cards - Questions & Answers

A. A credit card represents a loan agreement where you are offered credit, providing you pay off a minimum amount each month. You can charge purchases up to the amount of your credit limit and pay for them later, subject to the terms and conditions of the card.

Q. How do credit cards work?

A. With a credit card, as long as you do not exceed your credit limit, you can spend whatever you wish, wherever your credit card is accepted. You are required to pay a minimum amount off the balance each time you receive a billing statement. The usual minimum payment is approximately 3% - 5% of the balance. You can sign for purchases or you can purchase by telephone or the Internet. There are many different card issuers, but most operate through two worldwide credit card networks - VISA and MasterCard.

Q. Do all credit cards offer the same service?

A. No, there are huge differences in the services provided by credit card issuers. For example, there are cards available to people at a set minimum income level, e.g. Gold/Platinum cards, and these may provide more benefits to the customer. With Affinity and Charity cards, a small percentage of what you spend is donated to an affiliated organisation. Reward programmes offer air miles, shopping points, cash rebates or special discounts. If you do not pay your balance, you may lose these benefits. Other features include access to cash machines, travel insurance, and special introductory rates. Purchase Protection is available in the case of loss, theft or damage to goods you purchase with your card. You can compare these features with our detailed comparison tool.

Q. How do I get a credit card?

A. Complete the following 3 steps:

1. Through our tailored search option, simply select those features that are important to you in the list of options provided. You will then be presented with a list of suitable credit cards.
2. For our on-line partners, you can complete the application form for their products on this site and send it off. When you apply for the card a credit check will be run by the card provider. All aspects of your application are also assessed by the product provider, and a decision is provided within 24 hours.
3. For all other product providers listed, you can apply either through their own website, or by telephone. The contact details will be provided.

Q. Am I obligated to accept the offer if I apply?

A. If you apply and are approved for a credit card, you are under no obligation to accept the offer. An offer will be sent to your listed address and you choose to accept by returning the signed document to the product provider.

Q. What if my application is rejected?

A. If your application is rejected, you can ask your credit card provider to review the application. If a credit reference agency has been used, you can ask for the agency name and address. Write to them requesting any details held on you (see FAQ: How do I check my credit rating?). Don't forget that you can apply for more than one card at a time.

Q. Are there any credit card traps?

A. With credit cards it´s very easy to borrow without realising how much, until you receive your monthly statement. So, try to keep track of your spending. Credit cards can be a costly form of borrowing so look out for other loans, such as personal loans, that might better suit your needs. Tesco Compare also provides a loan comparison service if you wish to search for a loan now. Always keep your receipts and check them against your statement. If you do not recognise an item on your statement, contact the provider immediately. Note that if you use your card overseas, sometimes it takes longer for items to appear on your statement.

Q. How is my credit limit determined?

A. Your credit limit is determined by a combination of things, including your credit history, income and amount of debt. These conditions are also used to determine what type of card you may be offered. For example, some standard cards have credit limits of up to £3,000. Gold and platinum cards may offer extended credit limits to customers with well established and very favourable credit histories. Customers without a credit history or with blemished credit histories tend to be offered secured cards or unsecured standard cards with lower credit limits. Once a cardholder's credit history is established or improved, cards with higher credit limits could be obtained.

Q. How am I judged when applying for a credit card?

A. Judgement criteria can vary from one card provider to another. However, your income and your credit history are the two main criteria. Many card providers rely on data from credit reference agencies.

Q. How do I check my credit rating?

A. First of all, you need to understand how the system works. Remember that you do not have a right to credit, and before giving you credit, lenders such as banks and loan companies want to check that you are an acceptable risk. To help them do this, they check with firms called credit reference agencies (CRAs) to get details about you and your credit record. These agencies have records of almost every adult in the UK.

You can write to the two main CRAs for credit information at the following addresses:

Experian, PO Box 8000, Nottingham NG1 5GX, tel. 0115 976 8747.

Equifax, Dept 1E, PO Box 3001, Glasgow G81 2DT, tel. 0990 783783.

You must send a cheque for £2 (made payable to Experian or Equifax), your full name and address and any addresses you have had in the last six years (this helps the agency to track all the information it has on you). If you run a business, give its name and address as well, because separate information could be held on you under your business.

Q. Does applying for a credit card affect my credit status?

A. Yes. Every time you apply for a credit card, an inquiry is made as to your credit status. This inquiry is noted with the respective credit agency. Although these inquiries will remain on the report for approximately one year, providers will be primarily concerned with the number of inquiries over the last 6 months. Providers do become concerned if there are more than 10 inquiries during that time. They could interpret this as an indication that you are badly in need of credit, and thereby consider you high risk. As a result, they will be less likely to grant you the credit card you are applying for.

Q. Why do providers put so much importance on a good credit history?

A. When issuing you with a credit card, providers give you credit. They take this risk based on your ability to repay that money. Your credit history shows how you have repaid loans in the past. This is taken as an indication of how you will repay loans in the future. If you have a good credit history you could be considered low risk. A good credit history can help you get more than credit card privileges. It can also help get loans for those bigger life purchases such as a car or a house. A good credit history speaks well for you. A poor credit history can be improved over time and people have opportunities to make that happen.

Q. I've had credit problems. Can I still qualify for a credit card?

A. There are cards available for those with a poor credit history. However, the card charges may be higher because you are considered a higher risk, and the limit may be lower. Once a good credit history has been established you could qualify for more credit card privileges.

Q. How much do they cost?

A. The cost can vary, depending on whether the card provider charges an annual fee, the interest rate charged for borrowing, the interest-free period offered, etc. Additional charges can include those for cash withdrawals, late/returned payments, and exceeding your credit limit.

Q. How are interest charges calculated?

A. How interest is calculated is important and decides how much you’re charged on your unpaid account balances.

There are 3 ways to decide what your unpaid account balances are:

Average Daily Balance (ADB)
Adjusted Balance (AB)
Previous Balance (PB)

The ADB is each day’s balance added up for the month and divided by the number of days in a billing cycle. This is the most common way to calculate your balance and proves the most costly to you. If you don’t pay your bill in full, the interest is charged from the day a charge is billed to your account.

The AB is the balance that remains after adjusting for payments and credits posted during the billing cycle. This is the least costly method to you.

The PB is the outstanding balance at the end of the previous month. This is less costly to you than the ADB but more costly than the AB.

Q. What does 'grace' or 'interest free' period mean?

A. This is the number of days of interest-free credit. You are not charged interest on your account balance for a specific number of days. The number of days can vary from about 20 to 56.

Q. How should I pay the bill?

A.You can pay your bill in many ways - by direct debit, for example. Be careful, though, as there may be a charge for some methods. Your payment might also be delayed for some reason which can result in charges if it's late. As a general rule, you should try and pay your bill in full and by the monthly due date.

Q. Must I pay the full bill each month?

A. No, you do not have to pay the full bill, but the majority of card providers will require a minimum payment of approximately 3-5% of the outstanding balance on your account. The less you pay off your bill, the more interest you will be charged. If you do not wish to pay unnecessary interest charges, pay your bill in full and on time every month.

Q. How can I make sure I never miss paying my bill on time?

A. Set up a direct debit to ensure that the monthly payment is made automatically. It is worth considering this payment option because if you miss the deadline, the interest may be backdated to the date of purchase. By missing payments you might also be breaking the terms and conditions of offers - such as the 0% balance transfer fees, where the balance could revert to the full APR.

Q. What will happen if I can't afford to pay the outstanding balance as soon as possible?

A. Contact the provider to discuss your predicament as soon as possible. They may recommend an alternative solution as it is in their interest to have the problem solved. Alternatively, you could discuss this with a voluntary organisation that provides free advice and may help you manage your debts.

Q. What is Payment Protection?

A. Payment Protection is insurance that could protect you in the event you are unable to make payments under qualified circumstances.

Q. What is an affinity card?

A. An affinity card is a credit card that is linked to a particular charity. When a card is issued to you, a donation is made to the affiliated charity, and a small percentage will be donated for every transaction made on the card.

Q. What is an unsecured card?

A. You probably won’t hear this term often because it is the norm. A normal credit card is unsecured. The card provider cannot take specific assets of yours in the event you do not pay your bill.

Q. What is a debit card?

A. The amount you spend using a debit card is immediately deducted from your current account. Your banking institution issues you with a debit card. Debit cards may offer less protection than credit cards in the event of a billing dispute.

Q. Is a credit card the same as a charge card?

A. No. Like a credit card, a charge card allows you to charge a purchase and pay for it later subject to the terms and conditions of the card. But, a credit card offers a revolving line of credit. This means you don’t have to pay off the total balance – as long as you make a minimum monthly payment. With a charge card, however, everything you spend on the card must be paid in full each month. Charge cards often incur an annual fee because you don’t pay interest on purchases. But, they tend to offer very competitive reward programmes in exchange for the higher fee. An example of a charge card is American Express or Diner’s Club.

Q. Do all cards offer travel rewards?

A. No. Only certain cards offer the opportunity to accumulate travel points for purchases made with a card. If you want a card that offers travel rewards, you should apply for a card that is associated with an airline or travel program you’re interested in.

These cards sometimes have an annual fee, which can pay for itself if you earn enough travel rewards. Make sure you use the card for purchases that make good sense, and not just to earn travel benefits.

Q. I know ATM cards have PIN numbers. Why do credit cards have them?

A. A PIN is a numerical password that goes with your credit card. If you have a PIN, you can get a cash advance at an ATM displaying the symbol of the credit card network your card is with. You can also get a cash advance in another country and in the local currency – don't forget there could be charges associated with using credit cards abroad or for cash withdrawals.

Q. Where can I withdraw money using my credit card?

A. Once you have a PIN number, you can use your credit card to withdraw money at most cash machines in hundreds of countries around the world. Your credit card network will be identified on the cash machines that accept your card. Don't forget there could be charges associated with using credit cards abroad or for cash withdrawls.

Q. Can I get cash on my credit card?

A. Yes. The amount is subject to your normal limit, you pay a cash handling fee and there's no interest-free period.

Q. Why am I charged more interest when I use my credit card to get cash?

A. Credit card networks don't always charge higher interest rates on cash advances. In fact, most don't. They do charge a cash handling fee, which is usually a minimum charge of £2.00 or 1.5% of the cash amount you withdraw. Interest charges on cash advances, however, accrue from the moment you withdraw the cash.

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