Types of Credit cards available
Before proceeding further, it is probably best to dispel one of the biggest misconceptions around regarding UK credit cards – that is, although all UK credit cards can be considered plastic payment cards, not all plastic payment cards can be considered UK credit cards. To clarify this further, in general, in the UK today it possible to have one or more of the following plastic payment cards:
Debit cards
Introduced into the UK in the late 1980s by Barclays Bank (and shortly thereafter by the remaining high street banks), the debit card works by ‘linking’ to the holder’s bank account and thus allows the cardholder to use the card to make payment for items purchased. Alternatively, the cardholder can use the card to make cash withdrawals from ATMs. In both cases, the amount charged or withdrawn is automatically deducted from the cardholder’s bank account balance. As such, the cardholder is not able to use the card unless they have available funds in their account – either via a credit balance on their account or by having arranged an overdraft with their bank.
Charge cards
The forerunner to all of the other types of plastic cards (with the issue of the first charge card by Diners Club), the charge card allows you to use the card to purchase items. Later on you’ll be sent a statement from the charge card company and at that time you will be required to pay the outstanding balance on the charge card statement in one go - on the payment due date. Today charge cards come in the form of Diners Club, American Express and also various different types of store cards. One very important aspect they all share, however, is an inability to ‘carry-over’ an outstanding balance to the next statement.
Pre-payment cards
The most recent type of plastic payment card to be introduced into the UK, the idea behind pre-payment cards is that you ‘charge’ the card - by putting a positive balance on the card - and then use the card to make purchases for items you need until such time as the “balance” on your pre-payment card reaches zero. At that time you can elect to either buy a new prepayment card or recharge the old card you have. The thought behind prepayment cards was that they would eventually replace money – as plastic money, such as with telephone cards. However, to date, this has not proven to be the case and the ambit of prepayment cards is still fairly little limited – unless you have a bad credit rating, in which case they become a very useful tool to help you re-establish a good credit rating!
Credit cards
Also known as “living on the never-never”, credit cards are the premium in plastic cards - they give you the option of purchasing items on the card and/or making cash withdrawals. Not only that, but in either case you also have the option of making full repayment of your outstanding balance on your statement payment date, or of simply making the minimum repayment required in your statement (which is usually a percentage of your then outstanding debt balance, e.g. 5% of £100 = £5 repayment amount).
For the purposes of this Guide, however, we have effectively labelled all of the above different types of plastic cards under the title “credit cards”, and where the function or practice of one type of plastic card may differ dramatically from another, we will point this out to you.
Different Types of Credit Cards Available
Silver, Gold and Platinum Credit Cards
Today credit card holders can apply to have either a ‘silver’, ‘gold’ or ‘platinum’ credit card, depending on whether or not they meet the various application requirements. Generally, however, aside from the marketing aspect, which tends to give kudos points to those who hold a card higher up in the metallic strata, the primary differences between each of these cards can be found in:
- the different spending limits that each of the different types of cards has: ordinarily, users of a silver (the ‘lowest’ of the cards available) credit card will have a significantly lower credit spending limit than those who hold a platinum card (the ‘highest’ of the cards available).
- the application qualification: applicants for platinum cards will, normally, earn significantly higher salaries than applicants for silver cards.
- the annual fees: because with kudos comes an additional cost to you – normally in the form of higher membership fees and annual fees.
That said, because credit card issuers normally charge higher fees for higher ranking cards, people who are eligible for the higher ranking cards often apply for silver credit cards, so as to avoid these higher fees. To try and entice these cardholders to upgrade the status of their credit card, the issuer may well provide them with a credit limit which is higher than that normally afford to a silver cardholder. In such an event, it is quite possible to have a silver or gold credit card with a spending limit not that dissimilar to a platinum card, so don’t think that you have to apply for a higher ranking metallic card just to obtain the higher spending limit – it doesn’t always work out that way!
The Supplemental Credit Card
The supplemental credit card is issued to persons whom you authorize to use your credit card account. So, although supplemental credit card holders are issued their own credit card, the account from which the money comes from is the same number as yours. As such, any transactions (whether it is to purchase goods or to withdraw money) they process is charged to you and together you all have the same credit card limit – yours!
Although a very useful and beneficial tool, before you agree to authorise someone else to use your credit card account as a supplemental credit cardholder, you should note that:
- you will be held liable for their spending;
- if they overspend and have a bad credit rating, this will reflect on your credit rating; and
- you’ll likely find you are charged an additional annual fee for each supplemental cardholder.
Next Article in Guide:
- Who Can Apply For A Credit Card?
Not everyone is eliigable to apply for a credit card or debit card, this small section is dedicated to different types of payment card's application requirements.
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