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Credit and store cards

There are hundreds of cards available but most fall into one of these categories. To complicate matters slightly, you'll find that card issuers offer gold, platinum and ordinary cards. These are the same types of cards but with different conditions and benefits.

Debit cards

These take money directly from your bank account, they're not credit cards but an alternative to cash or writing a cheque. Linked to your bank account, debit cards often also work in cash machines.

Charge cards

If you use a charge card, you'll be sent a bill each month which you usually have to pay in full - so again, this isn't a credit card. You'll generally be charged an annual fee.

Budget, option or store cards

Issued by stores or retail groups, these offer a form of credit. You can use the card to buy goods at the store and will be sent a monthly bill. Paying back the money you've borrowed varies. Some cards will demand a minimum monthly payment, others take a fixed payment by standing order or direct debit. You will normally pay interest if you don't pay back all you owe each month. Remember to compare APRs (Annual Percentage Rates). Usually the lower the APR, the less you pay in interest.

Credit cards

You can use a credit card to borrow money to buy things straight away, and then decide over what period to repay the money you owe, plus interest. You get a monthly statement showing what you have bought and how much you owe. Each month you can pay back the full amount (usually free from any interest) or only some of the amount. Normally, you must pay at least £5 or 3-5 per cent (whichever is greater) of the money you owe each month and you will be charged interest on the outstanding debt each month. Remember to compare APRs. Usually the lower the APR the less you pay in interest. Credit cards can usually be used in cash machines, but you are likely to pay extra if you do.

Electronic purse cards

A relatively new scheme where you load a card with cash and then use it as an alternative to cash. Generally these cards are used for small purchases or to buy on the Internet.

A few points to remember

  • The Annual Percentage Rate of Charge (APR) is an expression of the total charge for credit for each year of a credit agreement.
  • Using cards to borrow money can be expensive and is a commitment. Think carefully before you use one and make sure that you can afford the repayments.
  • Compare the APR. The figures vary enormously and usually the lower the APR, the less interest you'll pay.
  • Stay within your credit limit and pay on time to avoid charges.
  • There are advantages to using credit cards when buying by mail order or on the Internet. If your goods or services are misrepresented or don't arrive, you may get a refund from the card issuer. Also, the Consumer Credit Act places a statutory restriction of £50 on your liability if your credit card is lost or stolen.
  • If someone else uses your credit card details to buy goods by mail order or the Internet, you will not be liable at all.

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