Help and guides - credit cards | Royal Financial of Scotland

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Useful information

A quick guide to credit cards

Credit card guide Helping you understand the basics

A credit card is a form of borrowing that lets you buy things and pay for them later, either in one go, or by instalments.

It's important to work out if a credit card is right for you and the best way for you to borrow money. If you do decided on applying for a credit card, make sure you think about what card meets most of your needs. It's also worth remembering that you are also credit scored when applying for a credit card.

Before applying, make sure you can afford to pay back any money which you plan to spend on the card. 

Credit cards can be an expensive way of borrowing. It's important you try to pay your balance in full every month. If you don't do this, you will be charged interest on your balance (unless you have an introductory 0% offer on your account).

If you are unable to make a full balance payment, make sure you pay the minimum payment. Missing a payment all together can result in interest and charges, this is also likely affect your credit score negatively.

Make sure you work out the total cost of borrowing with a credit card before using it. Some cards have high interest rates and fees if you fail to pay in full each month (outside of an introductory interest-free offer) which could mean borrowing is more affordable using an overdraft or a personal loan.


Icon expand Flexibility

A key benefit of credit cards is their flexibility. You can pay back your balance in large or small increments. You could use a credit card for all of your regular shopping and pay off the balance at the end of the month or keep a card just for emergencies. It is important to not go beyond the limits of what you can realistically pay back as interest can quickly mount up.

Used wisely, a credit card can be a cheap way of borrowing money, especially if you have a good credit rating to begin with. If there is an interest-free purchase period on a credit card you are interested in, you could pay off the purchase without incurring interest charges. This relies on you paying off the balance, in full, before the introductory period ends.

Credit cards are accepted in most countries. Some credit cards however, have additional charges when using them abroad. It is best to check with your card supplier before you go abroad to find out what spending on your card may cost you.

It's important you try to pay your balance in full every month. If you don't do this, you will be charged interest on your balance (unless you have an introductory 0% offer on your account). 

If you are unable to make a full balance payment, make sure you pay the minimum payment. Missing a payment can result in both interest and charges, this may also affect your credit score.


Icon expand Balance transfers

You may wish to consolidate existing credit and store card debt by transferring your existing balances to another new card with a lower rate of interest, especially if there is an interest-free introductory period on the new card. This could help reduce your monthly credit card payments and/or clear your debt quicker. There will usually be a fee to transfer a balance and it's very important to know how much this will cost you, before you apply for a new credit card.

You should calculate how long your think it will take to clear your debt before committing to another credit card. Some cards may offer balance transfers for a lower fee, but these may come with a shorter interest-free introductory period. There are also cards that charge a higher fee but they may have longer interest-free introductory period. 

It’s very important to work out what’s right for you and what the cost will be. It is also important to attempt paying off any balances you have, rather than switching from one card to the next. 

Make sure you make at least the minimum payment every month or you are likely to lose any introductory offer your credit card may have. If you go over your credit limit, you would also probably lose any introductory offer your card may have and have to start paying interest from that point, as well as causing damage to your credit file. 

It's very important that you aim to pay of your balance in full every month. If you are unable to pay this off in full, it is advisable that you pay off as much of the balance as you can. If you can only make the minimum payment each month it will take you longer to pay off and you will incur more interest. Providing you do not have an introductory offer.

Try to never miss a payment completely. If you do, you are likely to face both interest and charges as well as having your credit score affected.


Icon expand Interest on credit cards

If you are successful applying for a credit card you will be given a credit limit – this is the maximum amount you can spend.

If you don't pay off your balance in full each month, you will have to pay interest unless you have an 'interest-free' introductory offer on your credit card. If you only pay off the minimum required each month, credit cards can be an expensive form of borrowing. It's crucial you don't miss payments as this can damage your credit file.

Not all cards are the same. Some incentivise loyalty through cashback or rewards. Some charge an annual fee, some don't. Be aware that interest and APR rates can vary a lot depending on what credit card you apply for. You may get an introductory interest rate, often 0%, for balance transfers, purchases or even both. Always check what the rate will be at the end of the introductory period as this could rise dramatically. It's recommended that you also keep a note of when any 'interest-free' introductory offer ends. 

Interest is calculated as an annual percentage rate (APR). APR is used to work out how much it costs to borrow money and is often used by banks and other credit card providers. The APR includes any upfront fees charged by the lender, spread over the period for which you borrow the money.

It's important you try to pay your balance in full every month. If you don't do this, you will be charged interest on your balance (unless you have an introductory 0% offer on your account). 

If you are unable to make a full balance payment, make sure you pay the minimum payment. Missing a payment can result in both interest and charges, this may also affect your credit score.


Icon expand Store cards

Store cards may be something that we agree to on impulse when shopping, and most often because there's an extra discount on whatever you buy if you take one out. They work in the same way as a credit card, but only allow you to purchase goods from a particular shop or chain.

Store cards can seem like a convenient way to pay for something. However, some store cards have higher interest rates than credit cards and can work out to be very expensive, despite the introductory discounts. It is therefore vital if you do opt for a store card that you pay them off in full by the payment due date. Always make sure you understand the full cost of spending on your card, no matter what type of card it is. 


Icon expand Protecting your credit score

Credit is used for more than just credit cards – you might need it to buy a houseapply for a loan or get a mobile phone contract, among other things.

Lenders can access a credit file that gives them information about your borrowing. If you want to see your credit file to help with your financial planning or because you have been refused credit, you can request a copy (the statutory report costs £2) from a credit reference agency such as Experian.

There are a number of ways your credit score can be negatively impacted. We have included some (but not all) examples below:

  • Applying for credit too often
  • Always having a big balance on your credit and store cards
  • A history of missed or late payments
  • Missing credit card or loan payments
  • Failing to pay your mortgage on time

Remember, if your credit card company gives you a limit that's more than you want, or if they increase it without you requesting it, you can ask them to lower it. This is a good way to avoid the temptation to spend.

Top ten useful tips

1. Know your APR

Know the APR on all of your cards and pay off the most expensive first.

2. Set up a Direct Debit

Set up a Direct Debit to make your regular monthly payments to your credit card. That way you will not be liable for late payment charges.

3. Use alerts

If your credit card provider offers the ability to set up payment reminders and/or balance alerts, use them.

4. Try to avoid withdrawing cash

Avoid using credit cards to withdraw cash as the interest rate is likely to be higher than if you use it to purchase goods.

5. Don't miss a monthly payment

Do not miss a monthly payment, even if you can only afford to pay the minimum payment. This is still much better for your credit score than missing a payment entirely.

6. Be careful with what card you use

It's easier to budget if you use one credit card rather than several. Pick one that offers good value and stick with it.

7. Consolidate if it's worth it

If you have more than one card and have outstanding balances, consider consolidating them onto one balance transfer card if it will save you money and reduce the interest you are currently paying. However, make sure it will save you money and consider what the cost of the balance transfer fee will be.

8. If you are tempted easily, leave the card at home

Try leaving your card at home if you're not planning a purchase but you're easily tempted. It makes it easier to resist impulse buys you don't really need.

9. Know the total cost

APR is based on interest rate plus any extra costs such as fees and charges. This gives a total annual cost for your credit. It's important you understand how much you will pay if you use your credit card so read all documentation carefully.

10. Familiarise yourself with the credit agreement

When applying for a credit card, familiarise yourself with the credit agreement. It will outline all of the fees and interest rates on the card. 

There is a lot of information available on credit cards in the wider space. On top of the information available on our website, another useful website is run by the Money Advice Service.

Have you had an application declined?

There can be a number of reasons why your credit card application may have been declined. It's also worth knowing where to go to get a copy of your credit file.

Find out more
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