Understanding credit card charges

With the exception of pre-paid and store cards, credit cards have very similar charging structures. These can seem complicated at first, but taking the time to understand these will put you in a better position. Not being aware of certain credit card charges, and when they can be applied, may mean your regular repayments are too low, which can result in your credit card debt quickly becoming larger than you expected.

All credit card issuers are obliged under the terms of the Banking Code (2008) to provide a Summary Box of information outlining charges and interest rates for their credit card products, so consumers can make an informed decision before they take up an offer.

The tables below explain and give examples of the terms used in summary boxes:

Summary Box term	What it means	Example
APR (Annual Percentage Rate)	A percentage of what you borrow is charged as an annual interest charge. So an APR of 14.9% means you pay £14.90 per year, for every £100 borrowed. This is an important charge you should be aware of when selecting a credit card, the lower the APR the less it will cost you. The actual APR you may be offered is dependent on your credit history.	Typical 14.9% APR (variable)
Interest rates for Purchases Cash Withdrawals Balance Transfers	Separate interest rates are charged for purchases, cash withdrawals and balance transfers, for different periods of time. In this example purchases are interest free for the first six months, then the monthly rate goes up to 1.167%, and over the year you will pay 14.9% annual interest. Note the different rates for cash withdrawals and balance transfers.	Promotional Rate: Purchases 0% for six months, Cash Withdrawals n/a, Balance transfers n/a. Monthly Rate: Purchases 1.167%, Cash Withdrawals 2.075%, Balance Transfers 1.167% Annual Rate: Purchases 14.9%, Cash Withdrawals 27.9%, Balance Transfers 14.9%
Interest free period	Details of what, if any, interest free periods will apply on the card.	Maximum 56 days for purchases if you pay your balance in full and on time.
Interest charging information for Purchases Cash Withdrawals Balance Transfers	How long interest will be charged for on purchases, cash withdrawals and balance transfers.	If interest is payable, it will be charged: From date of purchase until paid in full From date of withdrawal until paid in full From date debited until paid in full

In addition to the applicable interest rates credit card issuers must include the following payment related information in their summary boxes:

Summary Box term	Explanation	Example
Allocation of payments	How your monthly repayments will be applied if you don't clear the balance in full. It's important to know exactly what you're paying off each month so you can ensure you're reducing the amount you've borrowed, not just covering interest and charges.	Payments you make will reduce your balance in the following order: 1. Default Charges 2. Promotional balance transfers 3. Promotional purchases 4. Purchases, balance transfers and other charges 5. Cash withdrawals
Minimum payment amount	The minimum amount you are expected to repay on the card each month to avoid default charges and to prevent your credit rating from being negatively affected.	The greater of: 2% (minimum £5) of the balance shown on your statement; or if it is more the amounts for interest and Payment Protection Cover premium (if applicable) on your statement.
Credit limit	The minimum and maximum credit limits available on the card. In this example the cash withdrawal limit is also specified.	Minimum credit limit - £500. Your cash limit is 50% of your actual limit. Maximum credit limit - subject to status

Finally, all other charges and fees that could apply on the credit card must be detailed as follows:

Summary Box term	Explanation	Example
Fees	One off general fees and how much they are.	Annual Fee - Nil Multiple card user fee - Nil Security deposit - N/a
Charges	Regular charges that may apply (these are in addition to interest charges). In this example, a cash withdrawal of £500 will incur a charge of £12.50 (2.5% of £500).	Cash withdrawals - 2.5% (min £2.50) Balance transfers - 2.5% Credit card cheques - 2.5% Overseas/foreign transactions - 2.75% Copy statement - £3 Copy transaction - £3
Default Charges	Charges that, for example, may apply every time you miss a payment or go over your credit limit.	Late payment fee £12 Over credit limit £12 Returned payment £12

In addition to the above, there may be other costs to consider such as optional credit card insurance:

Card protection schemes - for an annual fee of around £15 or a small percentage of the amount you spend, get comprehensive insurance cover against theft and fraud. Most credit card companies provide a degree of free cover for theft and/or fraud. Most credit cards have built in cover for Internet fraud.

Repayment protection plans - one percent of the money you spend or a small one off fee is charged to provide insurance cover to protect your repayments in the event you are unable to make them, due to loss of income through sickness and/or redundancy.

Not all credit card companies charge the same fees and amounts, so although the APR is the most important thing to be aware of when comparing credit cards, make sure you're aware of the other potential interest rates, charges and optional insurance costs that may also apply.

Download the Credit Cards PDF Guide here - see our other free PDF guides here

Guide Contents

Thinking about credit cards?
How to manage credit card transfers and debt
Compare Credit Cards and find the right card for you
Understanding credit card charges
Shopping around for the best credit card deals
What to expect when you apply for a credit card
Credit card FAQ - eg. What Are 0% and Interest Free Credit Cards
Where can I go to get more credit card help?

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