Credit cards can be a safe and convenient method of payment, particularly when you are abroad, but they can also be costly. Most providers levy overseas usage fees which can significantly bump of the costs of a foreign transaction. British consumers spend about £300m a year on foreign usage fees according to Nationwide building society.
Credit card exchange rates are based on the Visa and Mastercard wholesale rates, with a loading percentage usually added by the card issuers. This can vary from 0% to 3% depending on the credit card. The rate applied may also be different depending on where in the world you are – some providers levy higher charges in countries outside Europe.
When selecting a credit card for use abroad it is also worth looking at the other facilities on offer, such as the provision of a replacement card in the event of the loss or theft of your own. Extra benefits may include an international assistance package or insurance for flight delays, lost luggage and personal injury.
To make choosing a UK credit card for use abroad a little easier we have dedicated a comparison table to the cause.
Another option if you are a regular traveller, is to go for a prepaid card, This type of card is relatively new to the market but an increasing number of providers are offering them. They can be used in the same way as a credit or debit card, but the difference is that you have to load money onto them beforehand and they do not offer a credit facility – you can only spend what is on there.
The fees on prepaid cards can be significantly lower than those charged by many credit card providers so they may provide a more cost effective alternative. For more information read our Guide to prepaid cards or click here to go to our prepaid card comparison tool.
Is there anything to watch out for?
The unwary credit card user can be caught out by a range of fees and charges, so be careful. Fees to watch out for include late payments, exceeding your credit limit and returned payments (if your cheque bounces or a direct debit is declined). And common charges include fees for cash withdrawals, balance transfers and overseas transactions.
Many card providers use a system called risk-based pricing. This means the interest rate you are offered will depend on your credit history. Providers advertise a ‘typical’ annual percentage rate which is a rate of interest that must be offered to at least 66% of successful applicants, so 34% could be offered a different rate than they applied for. Those with the best credit scores are most likely to qualify for the advertised rate. If your credit history is less than perfect you may be offered a higher rate of interest.
As has already been mentioned the other major thing to watch out for is how payments are allocated. Most credit card providers use a payment hierarchy where the cheapest debt is paid off first. You should therefore only use your card for one purpose unless the same rate of interest is charged on balance transfers, purchases and cash withdrawals.
Will I be accepted for a credit card?
Card providers look at your credit history when deciding whether or not to lend to you. A good credit score is vitally important.
Late or missed credit card, loan or mortgage repayments have a serious impact on your credit score, so it is worth setting up direct debits to ensure your payments arrive on time.
There are steps you can take to improve your chances of having an application accepted. These include cancelling any cards you no longer use as they may inhibit your ability to get further credit in the future. Firms are increasingly looking at the total credit available to you, rather than just focusing on your outstanding debt. You also need to make sure you are on the electoral register at your current address.
You also need to be careful about which cards you apply for – the best deals are only available to those with the highest credit scores so there is no point in applying for a card you have no chance of getting. Every time you make an application for credit a ‘footprint’ is left on your credit file and this has a negative impact on your score.
Further advice
If you are unable to meet your monthly repayments and are struggling to repay your outstanding balance, contact your credit card issuer. The earlier you approach them, the more sympathetic they will be to your situation.
Alternatively, consider switching your card to one with lower rates and fees before you become too bogged down with your repayments but beware - if you leave it too long you may struggle to find another company that is willing to lend to you.
If you are refused a credit card and wish to make enquiries concerning your own credit file you can apply to the credit reference agency for your record. This will show your past repayment history, any County Court Judgments or defaults registered against you, electoral roll details and previous credit searches.
If you are struggling to cope financially, free advice is available from your local Citizen's Advice Bureau, theNational Debtline on 0808 808 4000, or the Consumer Credit Counselling Service (CCCS) on 0800 138 1111
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