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Credit cards explained

This credit card buyers' guide outlines the different types of credit card, interest rates, credit limits and consumer protection.

Credit cards are fairly simple – you spend and then choose when to repay the money.

But there are all sorts of deals and benefits. Here's what you need to know to compare credit cards:

Types of credit card

There are a couple of main types of credit card.

Visa vs. MasterCard

It doesn't matter that much whether your card is Visa or MasterCard. Shops that take one in the UK or Europe nearly always take the other.

In some other countries Visa or MasterCard may be more widely accepted, so if in doubt, check - or carry one of each if you feel that would be easier.

Platinum, gold and standard credit cards

Gold and platinum cards generally have more perks and higher credit limits (see below).

There are usually minimum age and salary restrictions (with the rules stricter for platinum cards). Different issuers use different criteria, so it's worth checking with your preferred provider.

Credit card interest rates

Credit cards are advertised using APRs – a way to show interest as an annual rate for easy comparison.

Sometimes typical APRs are shown. Here, the rate you pay will depend on your credit record - those with a good credit rating will often pay less.

The interest rate you pay

There are three types of interest rate.

Rate	Explanation
Purchases	Paid on anything you buy - although if you pay your bills in full each month, you won't be charged interest.
Cash advances	A slightly higher rate for withdrawing money from cash machines. Applies even if you repay bills in full.
Balance transfers	A special rate – sometimes 0% for a period of time - when you transfer a balance from another card.

Interest free periods

Most cards give you an interest-free period if you pay your bills in full.

If you make a purchase just after your last statement, then by the time the next one has come and you've paid it, you can benefit from nearly 60 days' interest-free borrowing – that's almost two months.

Other fees

There are a handful of fees to watch for, most of which you can easily avoid.

Late payment – If you're late paying a bill, issuers often charge around £12. To avoid this, set up a direct debit for the minimum amount each month – you can pay more when you want to.
Exceeding credit limit – If you go over your credit limit, there is often a fee of around £12.
Balance transfer – Most cards charge about 2 to 3% to accept balance transfers. This is normally much less than the interest you will save.
Cash withdrawal fee – What you pay to use a cash machine. It's usually under 2%, and is on top of any interest you'll pay.
Foreign exchange loading – You will normally pay commission for foreign money, whether in the form of credit cards, travellers' cheques or currency exchange (although these days, some providers don't charge). Even when credit card issuers charge commission on foreign purchases, you will sometimes benefit from a much better exchange rate than on the high street.

Your credit limit

The credit limit is the maximum you can owe on your card. It's set based on your credit record and income. Gold and platinum cards usually give higher credit limits.

You can ask the credit card company to raise your limit – they may want you to have held the card for a certain period first.

Extra consumer protection

The Consumer Credit Act makes the card issuer jointly liable with whoever you pay for the goods and services.

If something goes wrong (a retailer goes bust before delivering, or won't repair goods that were faulty when you bought them), you can claim money back from the credit card company.

There are restrictions on this protection – it applies only to things costing between £100 and £30,000, for instance. Check the policy details for exact limits.

Credit card buyers' guide brought to you by LowerMyBills from Experian

The LowerMyBills guide to credit cards was created to give you insight into credit card types, credit card interest rates, your credit limit, and consumer protection - so that you have the information you need to compare credit cards.