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Getting Credit – What to watch out for

Using your credit card abroad

Take a holiday and the changes are that you will need to use your card at some stage. Beware: many issuers levy a “foreign usage loading” of up to 2.75 per cent. Cash withdrawals range will cost between one and two per cent.

A good tip here is to have a card that you ONLY use on holiday. Naturally, it should be the one with no foreign loading. Nationwide Building Society, the Post Office, Saga and Liverpool Victoria do not apply foreign loading charges in Europe. Some also do not apply them elsewhere.

Payment hierarchies

This is complicated. Basically it describes the order in which any payments you make to settle your debts are credited to your account.

For example, some credit card issuers offer zero per cent deals in the first six months on any debts transferred to them. But any payments you make are then used to pay off the zero per cent element, not the new amount you have put on the card.

So if you transfer £1,000 of debt on your new card, spend £100 a month and pay back £200 a month, you are paying off the interest-free credit first.

It will take you five months to pay off that money. Meanwhile, your debt will still stand at £600, PLUS the interest owed on £100 for the first month, £200 for the second month, £300 for the third and so on.

Interest charging points

Here it gets almost impossible to explain without a NASA computer to help. Essentially, there are at least six different ways of charging interest on your card.

The later interest is applied – from the point of purchase, the moment a statement is printed, and so on – the less you pay. And vice versa.

The exact amount you pay depends on how you use your card. But some tests by the Consumers’ Association suggest cards used in the same way can involve differences in charges of up to 80 per cent.

Wherever possible, look for a card where the interest charge begins the moment the statement is produced.

Also, if you don’t pay off all your debts at the end of each month but you keep using it, look for a card where subsequent interest is only charged at the point of purchase.


More pages

Page 1: Introduction
Page 2: Daily or monthly interest?
Page 3: Using your credit card abroad

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