There is no longer this excuse though when it comes to credit cards, as providers now have to provide summary boxes which should clearly present all the information about the card, much of which used to be buried in the small print.
You may think credit cards are a straightforward financial product but different rates of interest are often charged depending on how you use the card, fees are levied for things such as a late payment; exceeding your credit limit; and using the card abroad. It is therefore easy for the unsuspecting customer to get caught out.
Here we guide you through the credit card summary box.
The appearance of summary boxes varies depending on the card issuer, but the basic layout and contents is the same across the board.
The first thing you will see is the rate of interest you will be charged. This is shown as the annual percentage rate (APR) which is the rate of interest charged over a year. If the word “typical” appears in front of the APR, the provider uses risk based pricing – this means that if you apply for the card you may not get that interest rate and the rate you are offered depends on your credit score. Two thirds of all those whose applications are accepted must be offered the typical rate but this means that up to 33% could be offered a higher rate.
You will then see if different rates of interest are charged depending on how you use your card. There can be up to three different rates – one for purchases, one for balance transfers and one for cash advances (using your card to withdraw money from an ATM). If the card has an introductory offer, such as a 0% period or a low lifetime balance transfer rate, this will also be displayed here.
If you use your card for cash advances not only are you likely to be charged a higher rate of interest, you also start accruing interest immediately. If you use the card for purchases however, you are given an interest free period. This means that those who clear their balance in full each month will not pay any interest. This interest free period varies – it is typically 56 days but could be up to 59 or may even only be 45. This is clearly stated in the summary box as is the payment hierarchy.
Most credit card providers put your monthly payments towards clearing the cheapest debt first, leaving you accruing interest at the highest rate. A few such as First Direct and HSBC clear the most expensive debt first.
You do not have to clear you balance in full each month but you must make a payment. The minimum required varies so make sure you check. If at all possible you should look to pay more than the minimum, otherwise it will take you a long time to clear your debt – the credit card provider should warn you of this and there should be an illustration of how the amount you pay each month will affect the length of time is will take to clear you balance and the extra you will pay in interest.
There is an array of charges that you may encounter when using a credit card such as balance transfer fees; the cost of using your card abroad and the fee levied if you require another copy of your statement. You will also be charged if you are late making a payment or go over your credit limit. A full list of these charges and the cost of each one will be given in the summary box.
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