UK Credit Card Terminology Explained

Low Rate Credit Cards

A low interest rate credit card is important if you tend to carry an outstanding balance on your credit card from month to month. Ideally you want to minimise your interest payments.

Introductory Rate Credit Cards

An introductory rate credit card usually offers 0% interest rates for new customers and are available from a wide range of credit card companies. An introductory rate credit card can cover balance transfers and / or purchases. When challenged to do so the card provider will sometimes make the introductory rate available to existing customers as well.

0% Balance Transfer Credit Cards

0% balance transfer credit cards are offered by a range of different credit card providers. 0% balance transfer credit cards offers you the ability to transfer an existing balance from a credit or store card and pay 0% interest on the amount transferred usually for a period of up to 6 months and with some cards for the life of the transferred balance.

Low Rate Balance Transfer Credit Cards

Most low rate balance transfer credit cards offer a fixed low interest rate for the life of the balance transferred, allowing you to pay off your balance transfer over a longer period of time without the worry of the promotional period expiring.

Cash Back Credit Cards

A cash back credit card allows you to earn money as a reward just for using your credit card. Cash back credit cards are offered by a range of different credit card companies and many offer different percentages of spend back, so it's a good idea to shop around.

Reward Points Credit Cards

Retail reward credit cards allow you to earn points every time you use the card for purchases. Points earned can be redeemed for goods and services from your chosen retailer or service provider. Most major UK retailers offer this sort of credit card or store credit card.

Travel Reward Credit Cards

Travel reward credit cards allow you to earn points or air miles every time you use the card for purchases. Accumulated points or air miles can then be redeemed for free or discounted travel including flights, holidays and hotels.

APR = Annual Percentage Rate

The APR is the amount of interest you will be charged each year, as a percentage of each pound you owe on your credit card or other debt eg. if you owe £1,000 and the APR is 10%, you will pay £100 in interest over the year.

The key thing to understand with interest payments on any form of borrowing is that you can also expect to pay interest on the interest. This is known as compound interest.

For example, if you kept a balance of £1,000 for two years, at the end of the first year, your balance would be £1,100. The second year, you would pay 10% interest on the £1,100, not just on the original £1,000. This would work out as £110, leaving you with a balance of £1,210 after two years.

Usually with credit (or more specifically, loans), you would consider the APR and the length of the loan. If the loan had a high APR but a short time period of borrowing, then this may be cheaper than a low APR loan that lasts a number of years.

As credit cards are not time-based this attaches much greater importance to the APR quoted , making it the single biggest factor when considering the cost of your credit card.