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What is a Credit Card? Benefits and How to Choose One

A credit card is a small plastic or metal card issued by a financial credit provider, which allows you to borrow and spend money within an agreed credit limit. The credit card issuer determines your credit limit, based on your profile, income and credit history. You’re required to pay back the amount you borrow plus interest fees, typically on a monthly basis. In cases where you pay up when you borrow within 56 days, you will incur no interest fees.  One example of a credit card is the Aer Lingus Credit Card. It offers cardholders travel rewards on Aer Lingus and you accumulate Avios points. 

What is a credit card

Credit cards are not always physical cards, these days there are virtual credit card which does not exist physically. There is a technology underpinning the credit card system that allows them to take physical or virtual form. You can now pay by credit card just by tapping your phone.

Now that we know what a credit card, let us now review what the benefits and disadvantages of credit cards. 

Pros of Credit Cards

  • Financial tool when used responsibly that be used to build credit history and allow for loan approvals in future.
  • Easy access to borrowings to finance immediate expenses and pay off later.
  • Flexible repayment option with a minimum payment option.
  • Access to credit card rewards and money saving features like 0% interest rate offers. 
  • Provides purchase protection against fraud and there is no direct link to a personal bank account.

Cons of Credit Cards

  • Risk of large credit card balance outweighs the rewards.
  • Frequent emergency spending on piles on credit card debts
  • Misused credit cards has a potential to damage your credit score
  • Making minimum payments is a terrible decision
    Interests makes large balance month to month very expensive
  • Fees and charges on credit cards are hidden and not so obvious 

Credit Card Terms and Fees

Credit card terms and conditions can vary from one issuer to another. These terms and conditions can have a huge impact on your personal finances and credit. Having a solid understanding of the common credit card terms is key to finding the best credit card for you. To avoid issues down the line, please ensure you read the fee schedule, terms and conditions of the credit card you decide to get. The basic terms of use for every credit card that you should be familiar with are:

  • Interest rate/APR: This is the fee charged on the outstanding credit balance on your credit card. Interest rates vary depending on the card and credit score of the person applying for the card. Generally, you can avoid interest by paying off your balance. Otherwise, interest is charged on any remaining balance carried from month to month. An APR represents the total cost of financing a loan, including fees associated with borrowing the money. In the case of credit card financing, there’s little difference between your APR and your interest rate.
  • Grace period: If you pay your bill in full each month, on time, you can avoid being charged interest. The time  is usually 56 days during which you can enjoy the use of the issuer’s money interest-free is known as the grace period.
  • Annual fee: The amount you are charged for the card on a yearly basis. Most cards in Ireland don’t charge an annual fee. 
  • Cash advance fees: A cash advance is when you use your credit card to withdraw cash from ATM. It is an option for emergency cash only. Fees on cash advances are high fees and accrue interest immediately. 
  • Late-payment charges: When you miss your payment deadline or your statement date, you pay a fee. 
  • Over-limit fees: When you spend over the agreed limit of your credit card, you incur a penalty for this
  • Credit limit: A credit limit is the spending limit on a credit card. 
  • Credit card balance: A credit card balance is the amount of money you’ve spent on your credit card and owe the credit card company at the end of the month. 

Types of Credit Cards

Balance Transfer Credit cards: These allow you to transfer a balance from other high interest-charging credit cards to the balance transfer card, which you then pay 0% interest on for a fixed promotional period – anywhere from 3 to 12 months. An example of a balance transfer card is An Post Money Classic Credit Card

Cash Back Credit Cards: Cashback cards offer you the opportunity to earn cashback on purchases. There ma y be an annual fee on such cards. The cashback you get might be dependent on a minimum spend and is calculated as a percentage of the amount spent. A good example of a cash back credit card without an annual fee is AIB Platinum Credit Card

0% Interest Rate or Low Interest Rate Credit Cards: You get a 0% interest rate on purchases for a period of time like An Post Money Flex Credit Card. Some credit cards also offer a low APR and lower interest rate than other credit cards, an example of this AIB Click Visa Card with an APR as low as 13.8%.  Low APR rarely offer 0% interest rate but they are great for long term and helping you pay off a balance a low rate.

Reward Credit Cards: These credit cards appeal to people that like rewards for their everyday spending. It can range from travel, hotel and restaurant rewards. These credit cards entices cardholders to spend and get loyalty points and rewards. Before you apply make sure you compare the benefits and rewards against the cost of keeping the card. As these cards may come with a higher APR and annual fee.

Airline Credit Cards: An example of an Airline credit card is Aer Lingus Credit Card. The card offers free flights, priority boarding passes, airport lounge access, travel insurance and Avios points. 

Money Transfer Cards: These cards allow you to transfer money from your credit card to your bank account. It can work like an interest free loan for the 0% interest free period. They can be a very cost-effective way of borrowing, an example of this type of card is the Avant Money One Credit Card

Business Credit Cards: As the name suggests, these cards are exclusively available to business owners. They vary greatly in their rewards, with some offering loyalty points for a minimum spend, while others focus more on helping with the budgeting and invoicing process. Business credit cards sometimes come with a fee, so it is worth calculating whether the reward you could reap would outweigh any costs. If you are a business owner regularly putting large purchases through a debit card, a credit card could instead earn you big rewards, cash-back or help with cash flow.

Student Credit Cards: There are 2 main student credit cards we have in Ireland, AIB Student Credit Card and Bank of Ireland Student Credit Card. These cards are designed to suit students lifestyle and to deal with financial needs in their student days. 

Choosing a Credit Card

When choosing a card that’s right for you, it’s helpful to understand a few things about yourself before applying for a credit card. You need to consider and ask yourself the following questions:

  • Life-style and payment style.
  • Are you an impulsive shopper?
  • Are you a bargain hunter?
  • Are you frugal?
  • Spendy?
  • Do you pay your bills on time?
  • Will I be oaying interest on debts?
  • Are you not so organized?

For example if you are the type that pays off the card balance each month, the interest rate is not going to be an issue as you will not incur a charge, so other features like no annual fee or airline rewards might be attractive to you. However if you are likely to carry a balance from month to month you should focus on finding a card with a low APR to minimise your interest payments. 

>> Read More: How to choose a credit card

Who can get a Credit Cards?

The minimum requirements and eligibility for credit cards are as follows:

  • Age: You have to be at least 18 years old
  • Residency: Resident in Ireland with at lease 3 years of address detail 
  • Income: Some credit cards may require a minimum income to be considered for the card

Best Practices to Use a Credit Card

  1. Be responsible and only use the credit that you need. Avoid spending on things that you can’t really afford. Credit cards are not a substitute for income and you should only use your credit card when you need to.
  2. Always pay off balances in full every month  to avoid accumulating interest charges. It is also a great way to establish a good credit history. 
  3. Regularly review your credit card transaction history. To avoid being a victim of fraud, it’s always a good idea to make sure that all of the charges on your account are legitimate and accurate.
  4. Keep tabs on your credit report and credit score. It is easier to identifying areas for improvement when you check your credit score regularly.
  5. Carefully select the right credit card for you. Look for cards that offer rewards for responsible credit behaviour, and be sure to consider the fees associated with each card you decide to apply for.

Final Thoughts

If you don’t know how to use your credit card wisely, you could end up in deep financial trouble. Credit cards can lead to huge debts if you have a habit of spending more than you can afford to pay off each month. When used wisely credit card can be a great tool for building credit that can help you achieve future financial goals. You can also use credit cards to earn rewards such as cash backs on purchases, like interest-free intro periods or travel insurance. 

However if you continuously pay only the minimum amount on their credit cards each month, you are exposed to high-interest charges, which can spiral you into a cycle of debt that’s very difficult to escape. To avoid this from happening, make sure to pay off your balance in full every month or, at the very least, pay more than the minimum amount each month.

Article Sources

Credit Cards – Money Hub – CCPC, accessed on January 20, 2024

Lynda Unogu

Lynda Unogu MBA IMC (CFA UK) PMP

Lynda is a former investment banker and before creating the Coins to Asset website worked for investment banks like JPMorgan, State Street and Citibank. She has an Economics degree and with an MBA degree from UCD Dublin.

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