You can apply for a credit card through the vast number of providers that are available today, a list of major issuers is provided here. As previously mentioned, Visa and MasterCard solely use issuers, whereas American Express can issue cards directly themselves as well as through providers.
- Direct mail – This had proven to be one of the best ways that credit card issuers can advertise and introduce their various types of cards to customers. However, you should be wary when applying for cards this way. Make sure that you also have information about all other cards available on the market, not just ones that are advertised to you through the post. There is also the matter of safety when sending your details through the post. As a result, if you do decide to apply for a card, try to do it over the phone.
- Online secure sites – Make sure that these are actually secure as, once again, there is the issue of safety when sending your details this way.
- Over the phone – If you decide to apply for a card through a credit card provider that is not a bank, this can be one of the safest and easiest ways of applying for a card. However, make sure that they send you full details of the terms and conditions before you sign the application.
- Through your bank – This is probably the best option if applying for a credit card. Dealing with a bank will minimize the safety issues and, once the application process is over, the cards themselves will simply be an extension of your bank account.
How quickly can I use my credit card?
When you apply for a credit card, the issuer will straight away provide you with an ‘instant approval’ decision, naturally stating whether your application has been approved or declined. However, instant approval is really a conditional approval to placate the customer while the company obtains a full credit report (which typically takes a few days). Before you make an application for instant approval, it is advisable to find out what your credit rating/score is, so that you will have an idea about whether or not you will be accepted or declined for the application.
In general, you will have to wait up to 14 days before you actually get the physical card. Once you are provided with the card, additional identity validations need to take place which protect the bank and the cardholder from the threat of identity theft.
Some issuers will provide you with instant credit. This means that you are given a temporary credit card number so that you can immediately start purchasing online. This is actually not very popular, however, as there is a high risk of fraud.
Some shops will provide you with instant use of their cards, which is usually joined with the incentive of 10% on your first purchase, thus encouraging you to open the account.
Credit card fine print
Credit card companies and issuers are renowned (and reviled) for their fine print, making it essential that you not only read the terms and conditions but also understand any of the jargon before you sign them.
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Firstly you should look in the Schumer Box, otherwise known as the honesty box or summary box. This is a vitally important table, introduced in 2004 as part of the legislation brought into place to stop people from being misled by credit card issuers. It includes the following:
- Annual fees (if applicable)
- APR for purchases
- Other APRs for fees such as balance transfers, cash advances, etc.
- Information about the grace period for purchases
- The finance calculation method (how your interest rate is applied)
- Other transaction fees (fees charged for late payments, exceeding limits, etc.)
For cards that are described as fixed rate, there will be information in the terms and conditions explaining how the rules of your account change, should you go over your credit limit. One possible consequence is a boost to the interest rate at which you are charged, so you have to inform yourself properly and, most importantly, try not to exceed your credit limit.
Double billing cycle
If the terms and conditions refer to double-billing cycles, then the interest is applied for the balance 2 months prior to the current bill rather than on that monthly balance. This can mean that you can end up paying a lot more in interest or finance charges than you expected.
Any additional fees which are applied to your account can add up easily and quickly, therefore you must be aware of which ones (if any) the credit card has and the potential cost.
If the terms and conditions contain something like “Disputes in relation to the account are subject to binding arbitration”, you need to take notice. This means that should you, as the cardholder, have any disputes with the issuer then these are limited to an arbitration hearing. The issuer chooses the arbitrator and your legal options are greatly constrained. Unfortunately, most credit cards offer this. Although it may be impossible to foresee any disputes you may have, this point shows how important it is that you are aware of all the terms and conditions so that you do not receive any surprises further down the line.
Another noteworthy statement is “The introductory APR does not apply to Bank and ATM Cash Advances”. In general, the APR that is charged to these transactions is higher and so, if this is included in the terms and conditions, then be wary of or avoid using these facilities with your credit card.
Credit card insurance and protection
Types of insurance
All credit cards will offer some kind of insurance to go with their cards, otherwise known as credit shield, payment protection and/or credit safeguard. All of these aim to provide the cardholder with security in cases of unemployment, injury, disability or death, all of which would could make credit card monthly payments difficult or impossible.
With insurance, a monthly fee is paid so that in the event of any of the above, credit card payments would be suspended, only the minimum payment would have to be paid, or interest applied to the account may be stopped altogether for a certain period of time. The conditions for insurance are dependent not only on the type of cover which you take out, but also which event occurs.
There are four major types of insurance policies which can be taken out – life, disability, involuntary unemployment and property:
- For disability and unemployment, the insurance cover will specify that only the issuer’s minimum monthly payment has to be paid, and sometimes this is only allowed for a limited period of time. This means that you will still have to pay interest on what you owe, as most of the bill will not be paid off in this time.
- In cases of major illness, the credit card provider will usually specify that the cardholder must have been employed for a minimum of 20 hours a week before the illness occurred, otherwise they will not stop payments or interest.
- If you are diagnosed with a critical illness or, in the event of death, then usually the insurance coverer will pay off the whole balance on your credit card.
Insurance terms and conditions
It is very important that you read and understand the terms and conditions of the insurance policy before you decide to take out cover, as you may find that there are many loop holes for the insurance provider to get through. Before you sign the contract, ask the provider, or check the small print, for answers to the following queries:
- What situations will the insurance cover me for?
- Will this insurance cover my spouse/the additional cardholder?
- What are the requirements for each policy?
- Are there any factors that restrict the life or disability insurance, e.g. age or previous illness?
- Is it possible to cancel the insurance at any time? How do I go about canceling the insurance?
- Can I choose which policies I wish to buy or do I have to take out them all?
- How much does it cost? Are they separate costs? How often will I have to pay for this?
Credit card limits
The credit limit which you have on your card refers to the amount of money which the issuer has allowed you to spend each month. The maximum amount they are willing to risk depends on a number of things:
- Income – People with a larger income will be given a larger credit limit.
- Any assets to back up the cards – This is just an added security measure for the credit card issuer.
- Secured or unsecured card – If the card is unsecured then your credit limit will depend on your credit rating. However, secured cards simply need collateral to be able to provide a credit limit.
- The financial strength of the customer – This is only for unsecured cards. As above, the credit rating will determine the amount of credit that is provided.
- Your needs and requirements – Make sure that you only ask for a limit that you will feasibly be able to pay off, otherwise you will be left with a great deal of unmanageable debt. Also be aware of whether you think your credit limit’s needs will rise in the near future, as you probably will not want to apply for a greater credit limit in the future.
- Trade and bank references – The issuer may wish to obtain references from your bank and may contact your employer and other bodies if the card will be used for business purposes.
- Agency credit reports – This is one of the main facets used to determine your credit limit. These reports will provide information for the issuer about your payment performance on past bills and credit rating.
- Financial statements – These will provide information about how much you generally spend each month and your balances in the recent past.
- Past performance – If you have owned any other credit cards, then the issuer may look at how you managed these.