Everything You Need to Know About Credit Cards in 2024: A Complete Guide

Are you confused about how credit cards actually work? You're not alone. In this comprehensive guide, we'll break down everything you need to know about credit cards - from basic operations to choosing the right card for your needs.

‍

How Do Credit Cards Work? A Simple Explanation

Unlike debit cards that pull money directly from your bank account, credit cards work more like a short-term loan. Here's the simple version:

1. You make a purchase with your credit card
2. The card issuer pays the merchant
3. You receive a monthly statement
4. You repay the card issuer

It's really that straightforward! But let's dive deeper into what happens behind the scenes.

‍

Understanding Your Monthly Statement

Your credit card statement is your monthly snapshot of activity. These days, most statements arrive electronically through your banking app rather than in the mail. Each statement shows:

• All transactions from the previous month
• Any existing balance from previous months
• The total amount due
• Your minimum payment requirement

💡 Pro tip: The minimum payment covers interest, fees, and a small portion of your balance - but paying only the minimum can lead to significant interest charges over time.

‍

Making Credit Card Payments: Best Practices

Want to stay on top of your credit card payments? Here's what you need to know:

Setting Up an Automated Payment: The Smart Choice

While you can manually pay your credit card bill anytime, setting up an automated payment is usually the wisest move to avoid unnecessary interest charges. Incredible allows you to automate your credit card payments in two ways:

IncrediPay - A personalised payment plan designed to help you save on interest

• Calculates and executes a payment schedule based on your budget
• Choose to prioritise either accounts with the highest interest rates or those with the smallest balances
• Once set up, payments are automated each month

Pay in Full - Automatically pays your full statement balance

• Avoid missed payments and unnecessary interest charges
• Enjoy added flexibility by selecting a payment date that suits you
• Stay organised and ensure you’re always on top of your bills

‍

Understanding Statement Periods

Credit card statements operate on a monthly cycle. Here's a typical timeline:

• Statement generated (e.g., November 9)
• Covers transactions from previous month (October 10 - November 9)
• Payment due about 25 days later (December 5)

Important: Your balance might not hit zero after paying your statement because of new purchases made after the statement date. Don't worry - this is normal!

‍

Fees and Charges to Watch Out For

Nobody likes surprise fees. Here are the main charges to be aware of:

Common Credit Card Fees

• Missed Payment Fee: Usually around £12 if you don't pay the minimum
• Cash Withdrawal Fee: 2-3% plus immediate interest charges
• Foreign Transaction Fee: Typically 2-3% on overseas purchases
• Annual Fee: Rare on basic cards but common on premium rewards cards

🚫 Never use your credit card for cash withdrawals! The fees and immediate interest charges make this very expensive.

‍

Choosing the Right Credit Card

Different credit cards serve different purposes. Here are the main types:

Types of Credit Cards

1. Cashback/Rewards Cards
   • Earn up to 0.5% back on purchases
   • American Express offers up to 1%
   • Best for regular spenders who pay in full
2. 0% Purchase Cards
   • Interest-free purchases for 12-24 months
   • Perfect for large planned purchases
   • Watch out for interest rate jumps after the promotional period
3. Balance Transfer Cards
   • Transfer existing card debt to 0% interest
   • Usually includes a transfer fee
   • New purchases typically charged interest
   • Check out our balance transfer tracker!
4. Travel Cards
   • No foreign transaction fees
   • Competitive exchange rates
   • Ideal for frequent travellers
5. Credit Builder Cards
   • Designed for poor credit histories
   • Higher interest rates
   • Should always be paid in full monthly

‍

How to Apply for a Credit Card

Before applying, always use an eligibility checker to avoid damaging your credit score. A popular option is MoneySavingExpert. An eligibility check is only a "soft search", which won't affect your credit rating.

‍

Incredible makes managing and paying multiple credit cards easier. Incredible is now available on the App Store and Google Play Store - start your journey to better financial health today!