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Regarded by some as the cheapest form of a loan, credit cards are essentially unsecured loans. This means that no collateral or asset of any kind is required for the security of the lender.
You can get a credit card without such measures – it is simply a loan. Different lenders offer different kinds of cards, and you must know what you require before making a decision. A certain limit is applicable to each kind of card, this limit is determined by the lender and it is known as “cap”.
Knowing about the Annual Percentage Rate
Every lender has different interest rates that apply to a credit card. This rate is calculated per annum and is referred to as APR (Annual Percentage Rate). APR includes all additional fees that you would need to pay as part of your loan.
No matter what your interest rate is, your APR should not be too high, as this means that the loan is expensive. This is why, when comparing lenders, the first thing you ought to take note of is the APR.
Since this is provided by the lender and depends on them, it is important to do research and know what APR the lenders you are looking at have.
Understanding different kind of cards
As mentioned above, there are different kinds of credit cards, and knowing each is important if you intend to apply for one. Purchase cards are used to pay for purchases; mostly expensive things like plane tickets.
These cards have a 0% interest period, meaning for a certain time until when no interest applies. However, you must be aware of when this period ends so you are prepared to pay interest when it becomes applicable.
Clients often take advantage of purchase cards and overspend the money, this results in an inability to keep up with repayments and interest rates and eventually your finances suffer. You must be extra careful with repayments, as failure to make the payment might lead you to lose your card entirely.
Another kind of credit card is called a Balance transfer card. People with this card can transfer their money to other cards – including the ones with a 0% interest rate.
This helps you to avoid the interest rates completely, save money and you do not have to repay a large amount of money, making things easier. An important use of this card is debt consolidation – where you place all your outstanding balances in one card and manage it singularly.
The third type is called a Money transfer card, which can be used to transfer money from a credit card to your normal bank account. This way you owe the money to the lender at a 0% interest rate.
This rate can stay like that for over two years. You need to pay a fee in order to transfer the money. As soon as the interest-free period ends, you have to repay the money that was transferred, as well as the full interest.
Another type of credit card is called a low APR card. This card is ideal for people who need a lower APR and a longer repayment period. The APR remains low until the end of the term, this ensures that you do not have to pay hefty money, as soon as the interest-free period comes to an end.
The crucial requirements for credit cards
In order to qualify for a credit card, your credit history is the most important thing, and it is also the deciding factor. You must have a spotless credit score and a good credit rating.
Firstly, before applying for a card, you must know your credit well. If you are unaware, then request your full credit report from your financial service provider. In case of errors or mistakes in the report, action must be taken, and everything should be corrected.
If you have missed past payments or have a record of non-payments – these must be fixed immediately. You should make sure that your credit history is good enough for the lender. Your credit history at times determines what kind of card you get, the additional benefits and perks, as well as rewards offered by lenders.
You might get better interest rates and a wider spending limit, as opposed to those with average or poor credit history. You must ensure that you are eligible for the credit card.
Hence, you must be a citizen of the UK who is older than 18. You must provide a valid ID and proof of address. You must also be employed and be able to present recent payslips and bank statements.
Only apply if you have a good credit history and you meet the criteria, this is because rejection of the card is captured as part of your credit history and creates a dent in your financial statements. Multiple rejections in a short span of time can worsen things for you and you might not be able to get a card for a very long time.