Why the need for a credit card?

Online shopping, payment of bills on the internet, purchasing airline and theatre tickets on the internet, avoiding the risk of carrying loads of cash are some of the benefits of plastic money. Credit cards can give you immense convenience and flexibility for conducting financial transactions. Credit cards also ensure a greater amount of consumer protection. If you purchase something over the phone or Internet using your credit card and the goods don't arrive, you can advise your credit card provider to can cancel the transaction. You don't have this type of protection with cheques or cash.

Benefits offered by credit card companies

Credit card companies offer a wide range of features designed to entice you into buying their product. Some of these are - interest-free periods, waiver on annual fees for the 1st year, loyalty schemes (rewards scheme or bonus points) or contributions to charity. It is important to understand what type of a user you are before you choose a credit card.

Many credit card companies have a range of benefit schemes for their customers such free accident insurance, travel insurance, cardholder protection, currency exchange, many flight and holiday deals in tie-ups with leading travel or airline companies and the facility to pay utility bills using the credit card through one or more banks.

Frequently credit card companies offer an interest holiday to attract new customers. This period (usually about 6 months) involves no interest for using the facility. It is important to check with the company what will be the rate they will revert to when the initial period gets over.

Credit Card jargons

You need to be aware of the fine print that entails the services offered by any credit card companies. Be sure to get all the points well clarified before purchasing a credit card. Here are a few terms and their meanings that you need to be aware of

Amount Due - On a usual billing statement, the amount due is not your total balance, but rather the minimum payment for one billing cycle to keep your account current.

Credit Limit - Your credit limit is defined as the total amount of money you are authorized to use as credit. To site an example, you have a £500 credit limit; you can take out cash advances and charge items to your credit card for a total of up to £500 before the credit card company will deny a transaction. If you exceed the limit or fail to pay minimum balance against that limit, you may be charged an over-the-limit fee or have your credit card privileges cancelled.

Finance charge - Based most commonly on a percentage charge, a finance charge is applied to the outstanding balance as a fee for carrying a balance, usually monthly.

Minimum Monthly Payment - Interchangeable with the amount due, this is the smallest payment you can make to keep your account current.

Revolving Credit - This is a typical credit card agreement that allows consumers to pay all or part of the outstanding balance. As credit is paid off, it becomes available again for other purchases or cash advances.