Posts Tagged 'Credit Cards'
Know Your Plastic
There are so many different types of cards available now, that it can be almost impossible to keep on top of which one does what and how much they’re costing you! Credit card, store card, debit card, pre-pay card… So what are they all?
Debit Cards
Quite simply, the card associated with your bank account. They are not credit cards as they take the money straight out of your bank account as you pay for something. Many current accounts also issue debt cards that act as cheque guarantee cards and most of the time, they work in cash machines to make cash withdrawals.
Credit Cards
Credit cards do not take the money straight from your bank account when you use them to pay for something. Instead, you are essentially borrowing that money and you repay it at a later date – often with interest. You’ll often get a monthly statement showing exactly what you owe on your credit card and the minimum monthly repayment is £5 or 3% of the balance (whichever of those two is the greater). Credit cards can usually be used in cash machines too, but you will generally pay quite a fee for a cash withdrawal on a credit card.
Charge Cards
These are frequently confused with credit cards. However, with a charge card, you will receive a monthly bill that you have to settle there and then in full and, on top of that, you will probably be charged an annual fee. Many of them come with predefined maximum spending limits.
Store Cards
Store cards are somewhat like credit cards – except that they are issued by one store and can often only be used to make purchases in that store. As with a credit card, you will receive a monthly statement and will have a minimum repayment to make. Again, interest often applies.
Pre-Pay Cards
These are sometimes known as “electronic purse cards,” and are simply an alternative to cash. You load money onto the card and then use the card to make payments. This is ideal for those who are a little uncertain about entering details online for cards that they have associated with a bank account. In addition, they are ideal for those whose credit rating is too poor to be able to obtain any other type of card. This is the newest of the cards on this list.
That should clear up some confusion – though the way we pay for things is ever changing and by this time next year, there’ll probably be something else new!
Thumbs Down to Ending Credit Card Rip Offs
The Government’s proposed plans to end credit card rips offs have been rejected by credit cards providers. This probably comes as little surprise when you consider how the providers are able to profit from such policies, which generally he UK Cards Association, which represents British credit card providers was presented with a set of proposals from the Government at the end of 2009. They included:
- Setting a regulation that card companies must contact customers who repeatedly only make the minimum payment on their cards.
- Banning unsolicited credit limit increases for customers suffering repayment difficulties.
- A notice period of 30 days in which any other customer can opt out of a proposed credit limit increase.
According to USwitch.com, 5.7 million consumers had their credit limits increased in 2009 without their consent. While 43% of British consumers confess that they would be happy with a sudden increase, 50% would not.
Surely, however, random credit limit increases like this only serve to encourage excessive lending and spending? And surely that, in the wake of the toughest recession in a generation, cannot possibly be a good thing.
Either way, these were Government ‘proposals,’ without any element of force behind them. And as the credit card industry has rejected them, it seems unlikely they will go ahead.
Prepaid Credit Cards Explained
In the USA, prepaid credit cards and secured credit cards have been a thriving product for a few years now. However, we seem to have been a bit slower to catch on here in the UK. But we’re getting there…. While there is still little in the way of secured credit cards available, prepaid cards are really beginning to take off.
But what is a prepaid credit card? Well, essentially it is a payment card that works much like your debit card. You will have a pin number to enable you to use it at ATMs or in stores and it will most likely be a VISA card. The money you spend, however, will not come from your bank account or be applied to a credit card bill that you will receive later on. Instead, it will be deducted from an amount of money that you have already loaded on to the card. In this sense, what are commonly referred to as ‘prepaid credit cards’ actually work more like debt cards. So what’s the point?
Well there are a number of benefits to prepaid cards:-
- There are no credit checks to obtain them, which means they are ideal for those who, due to poor credit, are unable to get a bank account with a VISA/Mastercard.
- They offer security for those who shop online a lot (or offline even). If the card is not associated with a bank account, then if you are a victim of fraud, your bank balance is not at risk by default of someone obtaining the card details.
- They are great for helping to control your spending. You could, for example, load on your entire Christmas shopping budget and you will know when you have spent up. The cards will not let you spend a penny more than what is loaded on.
- Prepaid cards are great for travelling and are widely used as an alternative to traveller’s cheques.
- Top up online or in the Post Office! Most providers permit these forms of top up while some offer other ways in which you can add money too.
Of course, as with anything, there are the downsides too. The disadvantages of prepaid cards:-
- Many providers charge an application and/or setup fee for prepaid cards.
- A number of prepaid credit card providers charge for ATM withdrawals, in much the same way a credit card provider would charge for this service.
- Some, though definitely not all, charge a monthly subscription fee.
- Some providers charge to renew your card at its expiry.
So the best thing to do is shop around and find the prepaid card that suits you. There are plenty available that do not charge a monthly fee, though most do have some form of charge at setup. However, each provider offers a slightly different package and reading the small print before you apply for anything means you can find the card that provides exactly what you need.