The following article on credit cards has been provided by Moneysupermarket.com

Here are some common mistakes made by credit cardholders. Avoid them and you can avoid paying through the nose for your use of a credit card.

Taking out cash: unlike purchases with your card, withdrawing cash is not subject to the usual 50 days or so days of interest-free credit. You start paying interest from the day you take the cash out.

In addition, some banks charge a percentage on any withdrawals you make, while the interest levied is higher than for purchases.

Using a card abroad: Almost all cards levy what they call a “foreign loading” fee of up to 2.75%. This applies any time you use your card to pay for good/services or withdrawing cash. The usual charge for withdrawing cash also applies.

There are some cards – Nationwide, Liverpool Victoria, Saga and the Post Office – that do not charge not charge foreign loading for spending in Europe, and sometimes in the USA too.

There is also something called “dynamic currency conversion”: when you are paying a bill, you may be offered the chance to pay it in sterling. But the exchange rate will be set locally and may be much higher.

It is better to pay in the local currency and let your issuer sort out the conversion rate.

Making only the minimum monthly repayment: most credit card issuers are happy for you to make a minimum payment of between 2% or 3% of what you owe each month.

Yet research shows that a balance of £2,000 at 19.6% APR, repaid at 2% a month takes a staggering 42 years and four months to repay.

Payment hierarchies: we have discussed this before. Essentially, the most expensive debt (for example cash withdrawals) is the last element of what you owe that is repaid each month. This applies even if you have a 0% balance transfer card (unless there is also 0% charge on purchases).

In effect, if you are spending £100 a month and repaying £100 on a 0% card, you are gradually switching all your debt from 0% to the prevailing rate on your card.

Therefore, even with a 0% credit card, aim to pay off as much as possible – certainly more than you spend each month. Alternatively, keep two cards and spend (sensibly) on one of them and repay the debt on the 0% one.

Credit card interest calculation: There are, according to the consumer group Which? six different ways in which credit card interest is calculated.

The difference between various methods cam make a difference of as much as 70% between the cheapest and most expensive card – even if the APR charged remains identical.

Working out the difference between the charges is fiendishly difficult. What you should be aiming is for interest to be charged from the latest possible day, with no “interest charged on interest”.

This means that if you haven’t paid off your account in full, the issuer does not begin to add interest on a purchase from the day it is made.

Your credit card rights

It is not generally well-known, but using a credit card does offer its users additional protection compared to, say, debit cards linked directly to your current account.

Specifically, section 75 of the Consumer Credit Act of 1974 states that if you use your credit card to pay for something worth over £100 but no more than £30,000 then not only are the suppliers responsible if an item is faulty, but the credit card company too.

This serves as a form of insurance, as it means that if you have been unable to agree compensation with the supplier, you can go to the card issuer and invoke that protection under the law.

The same protection also applies if the supplier goes bankrupt.

Other form of protection worth considering – but which are at the discretion of a card issuer – include up to a year’s extended warranty on purchases made using your card.

This is on top of any manufactures warranty. Although this could be quite useful, it is worth noting that most products do not break within the first two to three years.

Also available at times is free insurance for theft, loss and accidental damage on anything purchased with the card. Again, although this may initially sounds useful, the cover tends to only last around 90 – 100 days.

Continue to Common credit card terms.

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