I have never had a credit card before, so what do I look for when I choose one?

That’s a good question and some people actually choose a card because they like the design printed on it. But you probably need to exercise a bit more financial judgement than that when you compare credit cards, so in the most basic terms you should look for a card that offers a low interest rate and the maximum number of days between making a purchase and having to pay the bill. And if you pay off your bill in full every month, look for some sort of loyalty bonus like cashback, Air Miles or points to spend at a later date.

Is it true that if I pay my credit card bill in full every month I will never have to pay interest?

Absolutely true – although it’s debatable whether the card companies would regard you as an ideal customer. Like most credit-based financial companies their profit margin lies in the interest they charge on the money they ‘lend’ you via the card, so that’s why it’s still important to pick a low-charging card when you make your credit card comparison. You may be paying off your bill in full every month at the moment, but it’s always good to know that if you can’t do that at any time then the interest you pay will be charged at a reasonable level.

Do I have any protection as a consumer when I make purchases with my credit card?

You most certainly do. When you pay for expensive goods with your credit cards UK you are covered by Section 75 of the Consumer Credit Act, which states that the card company is liable – with the vendor of the goods or services – in case of breach of contract. The protection schemes operated by the card companies require you to spend £100 on one purchase to qualify you for this cover.

I’ve heard of credit cards called ‘affinity cards’. What are these exactly?

Affinity cards are special credit cards whereby a charity of your choice gets a one-off donation, in the region of £5 in most cases, when you take one out – although you should still compare credit cards. Over and above that, a small percentage of what you spend – say, 0.25% – is sent to the charity automatically each time you make a purchase. Many charities have set up partnerships with banks to enable this to happen, and football clubs have done it as well, although their interest rates are not usually the best in the market.

I’ve heard of credit card companies offering a zero rate to get you to transfer your balances to them, but I cannot seem to find many that are doing this. What’s going on?

In the past, many credit cards UK companies offered zero per cent on balance transfers as an incentive for you to switch, tempting cardholders to shift their existing credit card debt to a new card, with no interest charged for six to 12 months. The problem for the companies was that ‘rate tarts’ swarmed in to take advantage of these offers for the offer period – and then swarmed out again as soon as the free period was up. Accountant Pricewaterhouse Coopers estimates that this cost the credit card UK companies £600m over six years so, not surprisingly, they largely stopped doing it and now charge customers to transfer balances. Unfortunately, there’s no such thing as a free lunch – or a free credit card.

When I make a payment on my credit card, what does the money go towards paying off first?

The best credit card companies, like Nationwide, allow borrowers to pay off the most expensive debts first and it’s important to compare credit cards to find a provider like this. But some don’t, so let’s take the example of Sarah. She has a credit card which offers 0% on balance transfers, but she has to pay the interest on her purchases. She has already transferred £1,000 from another card and has decided to buy a TV for £500 – also with her card. When the bill arrives, she pays off the £500 in full. However, the provider uses her £500 payment to pay off some of the £1,000 balance transfer, which is interest-free, leaving the TV payment on the card to build up interest. Impressed? No, so compare credit cards and ask the providers how they use your money to pay off your debt.

Do credit cards attract any extra fees and charges other than the interest that can accrue on them?

You bet they do. It’s been estimated that consumers waste around £116m on credit card fees and charges, mainly because providers charge anything up to £25 for a late payment, although some banks have cut these to £12 recently, following threats of legal action from the Office of Fair Trading. Be aware that some providers are a lot more upfront than others about the charges you will incur and, again, compare credit cards carefully to make sure you are getting the best deal possible.

Can I take out cash from a machine with my credit card?

You certainly can – and in doing so you are basically chucking your money down the nearest drain. Most providers of even the best credit cards UK will charge you between two per cent and three per cent for doing this and apply interest on the withdrawal immediately. Avoid at all costs – or only do it if you are desperate.

I have been sent some credit card cheques by my card provider. Are they just like a normal cheque on my UK current account?

They are definitely NOT like normal banck cheques and using a credit card cheque is just like taking out cash with your credit card. Interest will be applied immediately on purchases made with a credit card cheque and you get less protection than you do by using your card.

I want to use my credit card abroad. Will I be charged any extra for doing this?

By the vast majority, you bet you will – and it has been estimated that the credit card providers make around £500m in extra charges from the £20bn British customers spend on their travels each year. One thing to avoid if you can is withdrawing cash on your credit card abroad as it’s even more expensive than doing it at home.

Is a store card the same thing as a credit card?

It certainly works on the same principle, but it is a card you can only use in one particular store or in a branch of a chain of stores owned by the same company. When you compare credit cards you will see a variety of interest rates on offer. When you further compare credit cards with store cards, the latter will invariably be charging much higher rates of interest and you will be pressured to take out expensive insurance you almost certainly do not need.