Plastic Fantastic

Are you looking forward to getting a new mobile phone, another pair of trainers or the latest games console for Christmas? Of course you are! Everyone is... especially the credit card companies and retailers. But what do they have to do with your prezzies?

Paying by Credit Card...

Many presents are bought using credit cards. Last year the average Briton spent over £850 on Christmas, and £300 on presents, alone. Those of you in Scotland were the luckiest, with over £400 being spent on presents. Most of that Christmas spending is done on our credit cards.

The best known credit card brands are Visa and MasterCard. The first credit card was a Diners Card, it was issued to 200 people in 1951, and was accepted in just 27 restaurants in New York!

Nowadays, almost everyone with an income has one, and they can be used just about anywhere.

Did you know... Britain is the only country in Europe with more credit cards than people?

The reason why people need them is that at times you have to spend more money than you have in your bank account. This is often the case around the festive season when we discover that our Christmas list is longer than we thought. This money has to come from somewhere.

Banks can give you a loan, but they are expensive. So, a better option is to use a credit card. When you apply for one, the bank (or credit card company) will do a ‘credit check’, and if you qualify, they will send you a card. Most credit card companies charge an annual fee for this service.

How It All Works...

Have you noticed that when someone pays with a credit card, the first thing that happens is the shop presents you with a chip and pin machine and enters the amount? You then complete the sale by entering a PIN (Personal Identification Number) for security.

This is the shop getting authorisation from the credit card company that the card is valid and has enough money available to pay for the goods. At the end of the month, the company sends the holder of the card a bill for the money spent. It also pays the retailer or shop.

What’s the Deal...?

What someone has done by using a credit card, is to borrow money from the credit card company. Don’t think this credit is for free, though. Payment by credit card costs: sometimes, a monthly fee, and always interest if the credit card holder doesn’t pay the monthly bill in full and on time.

People often forget how much money they have borrowed, because this system is so easy, and some people spend a lot more than they can afford. So, it is very important to keep an eye on your spending and check your bills regularly.

By Axel Kirstetter, Financial expert

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