# Key Post: (Nearly) everything you wanted to know about credit cards



## CCOVICH (12 Mar 2006)

Hope this proves useful. All comments welcome.

*Interest

* Running up debts on a credit card is not cheap, although we are seeing more competitive rates in recent years. Rates vary widely, ranging from just under 10% Annual Percentage Rate (APR) to 19% APR. Ideally the interest rate should be irrelevant as it makes sound financial sense to pay off the balance in full when due so as to avoid interest, but the fact is that many of us will find ourselves unable to clear credit card balances at some point in our life. So it still makes sense to take a credit card with a lower APR if all other things are equal (for instance the limit on the card, how widely accepted, other fees and charges, etc.).

If the full balance on a statement is not paid by the due date, interest is charged on a daily basis, on all outstanding transactions from the transaction date until the date of full repayment. There is no interest free period for old or new purchases if your balance is not paid in full. Consequently, interest will continue to accrue on the remaining balance from the date of your part payment until full payment is credited to your account. Two ways to ensure that you avoid interest are to pay by direct debit, or to round up your payment by a few euro to make extra sure that you will clear the entire balance.

Paying off the minimum balance (e.g. €5 or 5% of the balance) does not mean that you avoid interest. In fact, paying off anything less than 100% of the balance outstanding at the end of each month means that you will be charged interest on the entire balance for the month. Note that the interest is applied monthly and when it appears on your bill it will be calculated as roughly 1/12th of the actual APR, i.e. with an APR of 9.5%, the monthly rate is 0.759%. 

It is also worth pointing out that if you close a credit card account and leave a balance unpaid, interest will continue to accrue, so be sure that there are not transactions you have forgotten about when closing a credit card account (especially direct debits coming from your account).

There is anecdotal evidence (you can be pretty sure credit card providers won't confirm or deny) that people have asked providers to reduce the interest rate on their card, and card providers have obliged. This has resulted in people paying interest at 14% as opposed to 18% (you could argue that they were mad to pay 18% in the first place, but that's another story). So if you are one of those people who are occasionally paying interest at 18% (if you are always paying interest at 18% cut up the card and take out a loan to clear your credit card debt!), call your credit card provider and see how they react to a request to lower the rate charged on your existing card. Otherwise ask them to issue you with a new credit card with a lower rate (e.g. a gold card etc.)

*Balance transfers

* 'Balance transfer' is the term used when you switch card providers and transfer your outstanding balance to your new credit card provider. It is a relatively straightforward process in that all you need to do is fill in a request and send it to your new card provider with details of you old card and the new card provider will do the rest. It is common these days for balance transfers to attract a zero or low interest rate for an introductory period, for example, Ulster Bank currently charge 0% for 9 months on balances transferred to their Zinc card (subject to certain terms and conditions), so if you find yourself with a large outstanding balance that you feel will take a few months to clear, it can make sound financial sense to switch card providers and avail of a 'breather' in which time you can pay down the balance at zero interest. However, this is not a course of action that you should take very often, as it would indicate that you may need to review your spending habits and whether you should have a credit card at all. Eventually you will run out of 'new' card providers and not be in a position to avail of favourable balance transfer rate.

Be aware that the balance transfer rate only applies to balances transferred and that any purchases may be liable to interest at a higher rate. Read the small print as to how interest is calculated as you may in fact incur interest charges even if you pay off your purchases balance on every month while the balance transfer amount remains outstanding.

Transferring a large balance requires the same discipline as taking out an interest free loan in that if you don't have the amount borrowed repaid in time (say, six months), you will be liable for interest on the full amount transferred (ignoring any partial repayments) for the full six month period i.e. if you don't repay in full by the end of the six month period, you forfeit the interest free period and interest is charged as if the full balance is outstanding for the entire six months.

*Stamp Duty

* The process of changing credit cards was made cheaper by changes made to stamp duty last year, where you are only liable for one €40 payment in any one year as long as you don't have more than one credit card account open at the same time. To be sure that you are not hit twice for stamp duty, you need to ensure that your old/existing credit card provider provides you with a letter confirming that you have paid the stamp duty for the current year (card providers are required to charge stamp duty for the year when an account is closed, and your new card provider is obliged to collect stamp duty in April each year) to give to your new card provider.

*Cash advances

* 'Cash advance' is the term used to cash withdrawals made from an ATM using your credit card (You should have obtained a personal identification number (PIN) around the same time your card was issued). You will be charged a fee for withdrawing cash _(unless your account is in credit, i.e. the card provider owes you money, but this is rarely likely to be the case)._ Interest on cash advances is also calculated in a different manner to purchases, and cardholders should check the terms and conditions of their card before using it to make cash withdrawls. Some card providers offer no interest free period when withdrawing cash, others offer the same terms as for purchases, i.e. no interest is payable as long as the balance is cleared in full by the due date. In general, the APR charged on cash transactions is higher than that charged on purchases. 

Using the cash advance facility can be a useful way of accessing money when abroad if you pre-load your card, i.e. lodge money to put your balance in credit. There are no withdrawal fees (none charged by the card provider, however the ATM provider may levy a separate charge), and the foreign exchange rate is generally more competitive than changing cash at a bureau de change. You should be aware that you may be liable for any unauthorised withdrawals/fraud on the card while the account is in credit, so exercise caution if building up a credit balance on your credit card as a means of accessing cash.

Do all credit cards have a similar system of charging interest on cash advances? According to the Ulster Bank website there is *no* interest free period for cash. Bank of Ireland charge no interest if the balance is repaid in full on time. So it seems that it varies between banks.

*Other fees and charges*

As with any financial product, always read the small print. Advertisements for credit cards will give prominence to interest rates, but the other charges that you may be liable for in some or all circumstances are rarely highlighted. For example, if you are late in making a payment, you may be charged a late payment fee, in addition to interest on the balance outstanding. This is why you should always pay the minimum balance (generally somewhere between €5 and €10) to avoid incurring charges. Similarly, going over your agreed credit limit will result in imposition of a penalty (if you feel you need more credit, ask yourself can you afford it, and then request it as card providers can no longer offer unasked for increases in credit limits). As mentioned previously, paying by direct debit ensures that your bill is paid on time and in full, thus avoiding any late payment fees and charges.

*Reward schemes*

Companies such as Tesco (www.tesco.ie) and Ryanair (www.ryanair.ie) offer points every time you use the card in certain places. This can equate to a cash equivalent in that you can use points to avail of discounts on goods and services bought in Tesco or through Ryanair, so these cards can be a good idea if your usage pattern allows you to build up significant points. 

American Express Blue card gives cardholders 1% of the value of all purchases as 'MoneyBack'. This allows the cardholder to earn 1c for virtually every €1 spent on the Blue Card. MoneyBack is calculated automatically, updated on a monthly basis and credited to your account every 12 months. The problem with American Express is that it is not as widely accepted as Mastercard or Visa, but if you use your credit card to pay for holidays, grocery shopping, eating out, petrol etc., it might be worth your while to maintain two credit cards account, for example, an American Express Blue Card (from Bank of Ireland-[broken link removed]) and a Zinc Card (a Mastercard from Ulster Bank-www.ulsterbank.ie). The Blue Card will give you 1% MoneyBack, so as long as you spend over €4,000 a year (on average over €330 per month), you will have earned enough to cover the cost of the Stamp Duty on the card, and everything else is money in your pocket. The Zinc card will give you a €40 reward if you spend over €6,000 a year (on average over €500 per month). So it may be worth considering whether you spend enough every month (on average) to take advantage of these offers.

As always, read the small print as terms and conditions do apply to these offers and watch for higher than average interest rates, fees, charges etc. on cards that offer loyalty bonuses.

*Shopping online

* Most online retailers only accept credit cards for goods and services, so having a credit card is generally a prerequisite for online shopping. The security of your credit card data depends on both the security of the site which you are using and the security of your own internet connection. Look out for an address starting "https://" (where the 's' stands for secure), or a 'lock' icon in the bottom left hand side of the screen. Both of these are indications that you are using a secure site. 

Never give out your credit card details via e-mail, only submit such details via a secure form. As a further layer of security, some retailers will only deliver to the credit cardholder address. This can be inconvenient at times, but it is a useful security tool. It is also desirable if the retailer uses a recognised payment service such as PayPal or WorldPay. Under this system, the retailer does not receive your credit card details. Instead, the payment service debits your account and passes the funds on to the retailer. There is no charge to the purchaser for using such a service.

Where goods are purchased from a European online retailer are covered by the EU Distance Selling Directive, which affords shoppers who purchase online a 7 day cooling-off-period - goods can be returned if you have a change of mind. This is not available to those who shop instore. You will be liable to pay the costs of returning the goods in this instance.

*Fraud

* Credit card fraud is growing all the time, so your vigilance is just as necessary as it ever was. Chip and PIN was introduced with the aim of making cards more secure, but there are differing views (that we will not go into here) as to how successful Chip and Pin will be. Regardless, the normal rules apply, e.g. never give your PIN information to anybody (retailers, credit card provider customer staff, even family members or friends) and exercise discretion when entering your PIN. Of course Chip and PIN does not mean that thieves cannot use your credit card details fraudulently, e.g. they only need the card details to make purchases online, and of course there is still the option to sign for purchases at point-of-sale (at the moment), so as already mentioned, continue to exercise discretion.

At a minimum, you should scrutinise your monthly statement carefully (even better, you can track movements on your account online if you have your credit card and bank account with the same institution) for unusual transactions. Query these immediately if you feel you didn't authorise them. If you are certain or have a strong suspicion that your card has been used fraudulently, cancel the card immediately and inform the card provider. In some cases, you may be advised/required to inform the Gardai. You should certainly retain as many receipts as possible so that you can agree these to your statement when it arrives as it can be easy to lose track of what has gone on your card when there are high volumes of transactions (e.g. at Christmas, on holiday, or while on a business trip).

In most cases, the card provider will refund the value of any unauthorised transactions to your account. However there are a few things you should note. If you have been found to have been negligent (e.g. with the card itself, the card details, or the PIN), then you will be liable for any losses. If you do not inform your card provider as soon as you notice any suspicious transactions or activity, then you may be liable for any losses incurred. Credit card providers may also limit the amounts for which they are liable by only covering amounts between certain thresholds, so don't take anything for granted when it comes to fraud on your account.

It should also be noted that the credit card provider can be liable if goods you buy with your credit card are never received, e.g. when the supplier/merchant goes bust or is engaged in fraudulent activity (e.g. selling stolen goods). So it is always a good idea to use a credit card when making high-value purchases (e.g. furniture, white goods etc), and of course when not undertaking a transaction face-to-face (shopping online or over the phone).

*Gold or silver???

* Credit cards often come in varying 'colours', e.g. MBNA Gold, AIB Platinum, or Ulster Bank Zinc. Bank of Scotland Ireland are in the process of launching their imaginatively titled 'Plastic' credit card. Does it matter what 'colour' our card is? Not really (unless you see it as a status symbol!), but 'better' cards generally carry lower interest rates, higher credit limits, and may offer fringe benefits such as free travel insurance. The catch is that Gold and Platinum cards require the holder to have a higher level of salary to apply. 

It is also possible to get 'affinity' cards, for example, from your university, or in your county's colours/crest. Using certain affinity cards may benefit the organisation in question, e.g. by opening an INO (Irish Nurses Organisation) Visa Credit Card, MBNA will make a contribution to the INO and a further contribution will be made every time you use your card for a card purchase, and every time a Concern Credit Card is taken out, MBNA will make contributions to Concern on your behalf. This is a relatively new phenomenon in Ireland, and cardholders would do well not to be taken in by gimmicky designs and offers that may conceal poor value on interest rates and other charges.

*Warning-this card may damage your financial health*

We have already mentioned that you may incur significant inerest and charges if you don't repay outstanding balances in time. If this situation persists, things become worse. For a start, interest accrues monthly, so that is added to your outstanding balance. Your credit record (as held by the Irish Credit Bureau) will be affected, and this may have an impact on your ability to get other forms of finance, e.g. personal loans, and more importantly perhaps, a mortgage. If you starting running up unpaid bills, get rid of the card so that you can't add to the balance by spending more. Then try and come to some sort of arrangment with the card provider regarding a repayment plan (some are more accomodating than other in this respect). You should also contact the Money and Advice Budgeting Service (MABS), a non-profit government funded organisation that provides advice and assistance for those struggling with debt. For contact details, see www.mabs.ie


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## Judybaby73 (13 Mar 2006)

well then ...that's it. Im cutting mine up. To be fair though that is an excellent source of information. Thanks


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## gearoidmm (13 Mar 2006)

Why would you overpay into your credit card account to fund cash withdrawals when you go abroad?  Would it not make more sense to just use your ATM card - they're accepted almost everywhere now?  Or is there an advantage to using the credit card over the ATM card once you have money in the account?


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## ClubMan (13 Mar 2006)

gearoidmm said:
			
		

> Why would you overpay into your credit card account to fund cash withdrawals when you go abroad?  Would it not make more sense to just use your ATM card - they're accepted almost everywhere now?  Or is there an advantage to using the credit card over the ATM card once you have money in the account?


Inside the € zone that probably makes sense. Outside the € zone the _CC _may involve more competitve charges than _Cirrus/Plus+/Maestro_. Also - not everybody has the latter on their _ATM/Laser _cards.


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## Itchy (13 Mar 2006)

Are there still FX charges even whaen a card is preloaded?


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## ClubMan (13 Mar 2006)

Yes - 1.75% or more in most cases but still often cheaper than changing cash or buying/cashing traveller's cheques.


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## Alex (13 Mar 2006)

well done and very informative i must say.


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## zat29 (13 Mar 2006)

AIB Gold card has the following currency conversion fees for outside the eurozone (no fees within eurozone).
AIB    |  VISA   |     MASTERCARD
1.75%     |    1%       |   0.25%

Does this mean that if I withdraw cash from ATM abroad (outside eurozone) with my visa card then I'll be charged a total of 2.75% ?


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## CCOVICH (13 Mar 2006)

zat29 said:
			
		

> AIB Gold card has the following currency conversion fees for outside the eurozone (no fees within eurozone).
> AIB    |  VISA   |     MASTERCARD
> 1.75%     |    1%       |   0.25%
> 
> Does this mean that if I withdraw cash from ATM abroad (outside eurozone) with my visa card then I'll be charged a total of 2.75% ?


It would appear so, and you may incur any fees that the ATM operator applies.

Please keep specific queries for other threads.  Thanks.


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## ClubMan (13 Mar 2006)

Note that _PTSB VISA _and some other cards charge only 1.75% in forex charges. Check out the _IFSRA CC _cost survey.


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## moneyblues (1 Aug 2006)

CCOVICH said:
			
		

> Transferring a large balance requires the same discipline as taking out an interest free loan in that if you don't have the amount borrowed repaid in time (say, six months), you will be liable for interest on the full amount transferred (ignoring any partial repayments) for the full six month period i.e. if you don't repay in full by the end of the six month period, you forfeit the interest free period and interest is charged as if the full balance is outstanding for the entire six months.


  
Came accross the above advice and was stunned. Do you really mean that I would have to pay back the entire amount transfered by the end of the 0% period to avoid interest charges? Having looked at several cards in the last few days - none make that clear!


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## CCOVICH (1 Aug 2006)

moneyblues said:
			
		

> Came accross the above advice and was stunned. Do you really mean that I would have to pay back the entire amount transfered by the end of the 0% period to avoid interest charges? Having looked at several cards in the last few days - none make that clear!



Yes-if it says otherwise in the terms and conditions, then fair enough, but take this to be the case in most instances.

If anyone heard The Last Word this evening (it's available online) you will have an appreciation for how credit card interest is calculated.


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## mell61 (2 Aug 2006)

Credit cards have a limit, not a target!

Good source of info, thanks for the work you put into it.


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## dovetail (18 Apr 2012)

Does any body know any credit card companies that DO NOT charge cash advance fees on credit balances?


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## TomOC (19 Apr 2012)

TSB only charge the forex charge of 1.75% if account in credit.  So no charge in Euro Zone and 1.75% everywhere else (when in credit balance).  I don't know of others off hand


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